Investors are always looking for growth in small-cap stocks like Calix Inc (NYSE:CALX), with a market cap of US$379.52m. 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. Evaluating financial health as part of your investment thesis is vital. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into CALX here.
How does CALX’s operating cash flow stack up against its debt?
Over the past year, CALX has borrowed debt capital of around US$30.00m . With this ramp up in debt, CALX currently has US$48.18m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of CALX’s operating efficiency ratios such as ROA here.
Can CALX pay its short-term liabilities?
Looking at CALX’s most recent US$120.76m liabilities, the company has been able to meet these obligations given the level of current assets of US$148.76m, with a current ratio of 1.23x. For Communications companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does CALX face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 21.25%, CALX’s debt level may be seen as prudent. CALX is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with CALX, and the company has plenty of headroom and ability to raise debt should it need to in the future.Next Steps:
CALX’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how CALX has been performing in the past. I suggest you continue to research Calix to get a more holistic view of the stock by looking at:
- 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.