1-800-FLOWERSCOM Inc (NASDAQ:FLWS) is a small-cap stock with a market capitalization of $749.64M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Online Retail businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into FLWS here.
How does FLWS’s operating cash flow stack up against its debt?
FLWS’s debt level has been constant at around $108.6M over the previous year – this includes both the current and long-term debt. At this stable level of debt, FLWS currently has $149.7M remaining in cash and short-term investments , ready to deploy into the business. Additionally, FLWS has generated cash from operations of $61.0M over the same time period, resulting in an operating cash to total debt ratio of 56.20%, signalling that FLWS’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In FLWS’s case, it is able to generate 0.56x cash from its debt capital.
Can FLWS meet its short-term obligations with the cash in hand?
At the current liabilities level of $125.2M liabilities, it seems that the business has been able to meet these commitments with a current assets level of $257.4M, leading to a 2.06x current account ratio. Usually, for Online Retail companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is FLWS’s debt level acceptable?
With debt reaching 40.39% of equity, FLWS may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In FLWS’s case, the ratio of 9.23x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Although FLWS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure FLWS has company-specific issues impacting its capital structure decisions. You should continue to research 1-800-FLOWERS.COM to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for FLWS’s future growth? Take a look at our free research report of analyst consensus for FLWS’s outlook.
- 2. Valuation: What is FLWS 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 FLWS is currently mispriced by the market.
- 3. 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 pass 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.