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Investors are always looking for growth in small-cap stocks like Calix, Inc. (NYSE:CALX), with a market cap of US$416m. However, an important fact which most ignore is: how financially healthy is the business? Communications companies, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into CALX here.
How does CALX’s operating cash flow stack up against its debt?
CALX’s debt level has been constant at around US$30m over the previous year . At this constant level of debt, CALX currently has US$50m remaining in cash and short-term investments for investing into the business. On top of this, CALX has generated US$3.6m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 12%, meaning that CALX’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In CALX’s case, it is able to generate 0.12x cash from its debt capital.
Does CALX’s liquid assets cover its short-term commitments?
With current liabilities at US$144m, the company has been able to meet these commitments with a current assets level of US$175m, leading to a 1.22x current account ratio. Usually, for Communications companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is CALX’s debt level acceptable?
With debt at 20% of equity, CALX may be thought of as appropriately levered. CALX is not taking on too much debt commitment, which may be constraining for future growth. CALX’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
CALX’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CALX has been performing in the past. I recommend you continue to research Calix to get a more holistic view of the stock by looking at:
- Valuation: What is CALX 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 CALX is currently mispriced by the market.
- Historical Performance: What has CALX’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.