Is Lantronix (NASDAQ:LTRX) 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 can see that Lantronix, Inc. (NASDAQ:LTRX) does use debt in its business. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Lantronix's Debt?

The image below, which you can click on for greater detail, shows that Lantronix had debt of US$11.8m at the end of June 2025, a reduction from US$16.2m over a year. However, it does have US$20.1m in cash offsetting this, leading to net cash of US$8.34m.

How Healthy Is Lantronix's Balance Sheet?

We can see from the most recent balance sheet that Lantronix had liabilities of US$30.4m falling due within a year, and liabilities of US$18.9m due beyond that. On the other hand, it had cash of US$20.1m and US$28.2m worth of receivables due within a year. So its liabilities total US$1.08m more than the combination of its cash and short-term receivables.

Having regard to Lantronix's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$179.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Lantronix also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Lantronix's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for Lantronix

In the last year Lantronix had a loss before interest and tax, and actually shrunk its revenue by 23%, to US$123m. To be frank that doesn't bode well.

So How Risky Is Lantronix?

Although Lantronix had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$6.8m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Lantronix you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.