Is Alpine 4 Holdings (NASDAQ:ALPP) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Alpine 4 Holdings, Inc. (NASDAQ:ALPP) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Alpine 4 Holdings

What Is Alpine 4 Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Alpine 4 Holdings had US$13.5m of debt in June 2021, down from US$25.2m, one year before. However, it also had US$10.5m in cash, and so its net debt is US$3.02m.

How Healthy Is Alpine 4 Holdings' Balance Sheet?

The latest balance sheet data shows that Alpine 4 Holdings had liabilities of US$24.8m due within a year, and liabilities of US$22.3m falling due after that. Offsetting these obligations, it had cash of US$10.5m as well as receivables valued at US$13.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$23.6m.

Since publicly traded Alpine 4 Holdings shares are worth a total of US$613.3m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, Alpine 4 Holdings has virtually no net debt, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Alpine 4 Holdings's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Alpine 4 Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to US$38m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Alpine 4 Holdings had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$9.6m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$16m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for Alpine 4 Holdings you should be aware of, and 2 of them are potentially serious.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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