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Investors are always looking for growth in small-cap stocks like Acorda Therapeutics, Inc. (NASDAQ:ACOR), with a market cap of US$330m. However, an important fact which most ignore is: how financially healthy is the business? Given that ACOR is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into ACOR here.
ACOR’s Debt (And Cash Flows)
ACOR has built up its total debt levels in the last twelve months, from US$338m to US$380m – this includes long-term debt. With this increase in debt, ACOR currently has US$343m remaining in cash and short-term investments to keep the business going. Additionally, ACOR has produced US$45m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 12%, meaning that ACOR’s current level of operating cash is not high enough to cover debt.
Can ACOR meet its short-term obligations with the cash in hand?
With current liabilities at US$97m, it appears that the company has been able to meet these commitments with a current assets level of US$418m, leading to a 4.3x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors.
Is ACOR’s debt level acceptable?
ACOR is a relatively highly levered company with a debt-to-equity of 61%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since ACOR is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although ACOR’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. Since there is also no concerns around ACOR's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for ACOR's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Acorda Therapeutics to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ACOR’s future growth? Take a look at our free research report of analyst consensus for ACOR’s outlook.
- Valuation: What is ACOR 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 ACOR is currently mispriced by the market.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.