Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as AIXTRON SE (DB:AIXA) with a market-capitalization of €1.77B, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at AIXA’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into AIXA here. View our latest analysis for AIXTRON
Does AIXA face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that AIXTRON has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with AIXA, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does AIXA’s liquid assets cover its short-term commitments?
Since AIXTRON doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at AIXA’s most recent €84.24M liabilities, the company has been able to meet these obligations given the level of current assets of €313.82M, with a current ratio of 3.73x. However, a ratio greater than 3x may be considered as too high, as AIXA could be holding too much capital in a low-return investment environment.
AIXA has zero-debt in addition to ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, however, some degree of debt could also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for AIXA’s financial health. Other important fundamentals need to be considered alongside. You should continue to research AIXTRON to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AIXA’s future growth? Take a look at our free research report of analyst consensus for AIXA’s outlook.
- Valuation: What is AIXA 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 AIXA 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 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.