Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as GTT Communications Inc (NYSE:GTT) with a market-capitalization of US$2.57b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at GTT’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of GTT Communications’s financial health, so you should conduct further analysis into GTT here. View out our latest analysis for GTT Communications
How does GTT’s operating cash flow stack up against its debt?
Over the past year, GTT has ramped up its debt from US$730.60m to US$1.25b , which is made up of current and long term debt. With this increase in debt, GTT currently has US$101.20m remaining in cash and short-term investments for investing into the business. Moreover, GTT has generated US$63.40m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 5.09%, indicating that GTT’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In GTT’s case, it is able to generate 0.051x cash from its debt capital.
Can GTT pay its short-term liabilities?
Looking at GTT’s most recent US$187.70m liabilities, the company has been able to meet these obligations given the level of current assets of US$228.10m, with a current ratio of 1.22x. For Internet companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can GTT service its debt comfortably?
GTT is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. However, since GTT is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, GTT has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for GTT’s financial health. Other important fundamentals need to be considered alongside. You should continue to research GTT Communications to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GTT’s future growth? Take a look at our free research report of analyst consensus for GTT’s outlook.
- Valuation: What is GTT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether GTT is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.