Is Cambium Networks (NASDAQ:CMBM) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Cambium Networks Corporation (NASDAQ:CMBM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Cambium Networks

What Is Cambium Networks's Net Debt?

As you can see below, Cambium Networks had US$25.8m of debt at September 2023, down from US$28.2m a year prior. However, it does have US$27.5m in cash offsetting this, leading to net cash of US$1.77m.

How Strong Is Cambium Networks' Balance Sheet?

We can see from the most recent balance sheet that Cambium Networks had liabilities of US$78.8m falling due within a year, and liabilities of US$36.8m due beyond that. Offsetting this, it had US$27.5m in cash and US$61.4m in receivables that were due within 12 months. So its liabilities total US$26.7m more than the combination of its cash and short-term receivables.

Cambium Networks has a market capitalization of US$123.4m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Cambium Networks boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Cambium Networks can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Cambium Networks had a loss before interest and tax, and actually shrunk its revenue by 9.1%, to US$264m. That's not what we would hope to see.

So How Risky Is Cambium Networks?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Cambium Networks had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$18m and booked a US$15m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$1.77m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Cambium Networks , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.