Aegion Corporation (NASDAQ:AEGN) is a small-cap stock with a market capitalization of US$789.7m. 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? Since AEGN is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into AEGN here.
How does AEGN’s operating cash flow stack up against its debt?
AEGN’s debt levels have fallen from US$379.3m to US$340.6m over the last 12 months , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at US$74.3m for investing into the business. Moreover, AEGN has produced cash from operations of US$77.0m in the last twelve months, resulting in an operating cash to total debt ratio of 22.6%, meaning that AEGN’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In AEGN’s case, it is able to generate 0.23x cash from its debt capital.
Can AEGN meet its short-term obligations with the cash in hand?
At the current liabilities level of US$240.3m liabilities, the company has been able to meet these obligations given the level of current assets of US$556.3m, with a current ratio of 2.32x. Generally, for Construction companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does AEGN face the risk of succumbing to its debt-load?
With debt reaching 68.9% of equity, AEGN may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since AEGN is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
AEGN’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. 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 AEGN has been performing in the past. You should continue to research Aegion to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AEGN’s future growth? Take a look at our free research report of analyst consensus for AEGN’s outlook.
- Valuation: What is AEGN 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 AEGN 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.
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 firstname.lastname@example.org.