Is Syntec Optics Holdings (NASDAQ:OPTX) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Syntec Optics Holdings, Inc. (NASDAQ:OPTX) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Syntec Optics Holdings

How Much Debt Does Syntec Optics Holdings Carry?

The chart below, which you can click on for greater detail, shows that Syntec Optics Holdings had US$9.22m in debt in September 2024; about the same as the year before. However, because it has a cash reserve of US$476.8k, its net debt is less, at about US$8.75m.

How Strong Is Syntec Optics Holdings' Balance Sheet?

According to the last reported balance sheet, Syntec Optics Holdings had liabilities of US$10.6m due within 12 months, and liabilities of US$4.59m due beyond 12 months. Offsetting these obligations, it had cash of US$476.8k as well as receivables valued at US$5.82m due within 12 months. So it has liabilities totalling US$8.89m more than its cash and near-term receivables, combined.

Given Syntec Optics Holdings has a market capitalization of US$74.5m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Syntec Optics Holdings will need earnings to service that debt. 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.

Over 12 months, Syntec Optics Holdings reported revenue of US$29m, which is a gain of 4.4%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Syntec Optics Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$1.1m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$1.4m in negative free cash flow over the last twelve months. So to be blunt we think it is 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 Syntec Optics Holdings you should be aware of, and 2 of them are a bit concerning.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.