Is Heartland Express (NASDAQ:HTLD) Using Too Much Debt?

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. As with many other companies Heartland Express, Inc. (NASDAQ:HTLD) makes use of debt. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Heartland Express

What Is Heartland Express's Net Debt?

As you can see below, Heartland Express had US$193.9m of debt at September 2024, down from US$321.7m a year prior. However, it does have US$30.7m in cash offsetting this, leading to net debt of about US$163.2m.

How Strong Is Heartland Express' Balance Sheet?

According to the last reported balance sheet, Heartland Express had liabilities of US$134.7m due within 12 months, and liabilities of US$401.0m due beyond 12 months. Offsetting these obligations, it had cash of US$30.7m as well as receivables valued at US$101.2m due within 12 months. So it has liabilities totalling US$403.7m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Heartland Express is worth US$883.9m, and thus could probably raise enough capital to shore up 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Heartland Express's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Heartland Express made a loss at the EBIT level, and saw its revenue drop to US$1.1b, which is a fall of 16%. We would much prefer see growth.

Caveat Emptor

While Heartland Express's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at US$37m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of US$23m. So in short it's a really risky stock. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Heartland Express insider transactions.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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