1Life Healthcare (NASDAQ:ONEM) Has Debt But No Earnings; Should You Worry?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, 1Life Healthcare, Inc. (NASDAQ:ONEM) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for 1Life Healthcare
What Is 1Life Healthcare's Debt?
As you can see below, at the end of December 2020, 1Life Healthcare had US$241.2m of debt, up from US$10.5m a year ago. Click the image for more detail. But it also has US$683.0m in cash to offset that, meaning it has US$441.8m net cash.
How Strong Is 1Life Healthcare's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that 1Life Healthcare had liabilities of US$117.4m due within 12 months and liabilities of US$405.1m due beyond that. On the other hand, it had cash of US$683.0m and US$68.4m worth of receivables due within a year. So it actually has US$228.9m more liquid assets than total liabilities.
This surplus suggests that 1Life Healthcare has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, 1Life Healthcare boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine 1Life Healthcare'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.
In the last year 1Life Healthcare wasn't profitable at an EBIT level, but managed to grow its revenue by 38%, to US$380m. With any luck the company will be able to grow its way to profitability.
So How Risky Is 1Life Healthcare?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year 1Life Healthcare had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$68m and booked a US$89m accounting loss. But the saving grace is the US$441.8m on the balance sheet. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, 1Life Healthcare may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for 1Life Healthcare that you should be aware of before investing here.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
This article by Simply Wall St is general in nature. 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.
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