Is Altra Industrial Motion Corp (NASDAQ:AIMC) A Financially Sound Company?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Altra Industrial Motion Corp (NASDAQ:AIMC) with a market-capitalization of US$2.1b, rarely draw their attention. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at AIMC’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into AIMC here.
Check out our latest analysis for Altra Industrial Motion
Does AIMC produce enough cash relative to debt?
AIMC’s debt levels have fallen from US$318m to US$271m over the last 12 months , which is made up of current and long term debt. With this debt payback, AIMC’s cash and short-term investments stands at US$50m , ready to deploy into the business. Additionally, AIMC has produced cash from operations of US$96m during the same period of time, resulting in an operating cash to total debt ratio of 35%, indicating that AIMC’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AIMC’s case, it is able to generate 0.35x cash from its debt capital.
Can AIMC pay its short-term liabilities?
Looking at AIMC’s most recent US$158m liabilities, the company has been able to meet these obligations given the level of current assets of US$370m, with a current ratio of 2.34x. Generally, for Machinery companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can AIMC service its debt comfortably?
With a debt-to-equity ratio of 65%, AIMC can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if AIMC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For AIMC, the ratio of 13.18x suggests that interest is comfortably 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.
Next Steps:
AIMC’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around AIMC’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure AIMC has company-specific issues impacting its capital structure decisions. You should continue to research Altra Industrial Motion to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for AIMC’s future growth? Take a look at our free research report of analyst consensus for AIMC’s outlook.
Valuation: What is AIMC 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 AIMC 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 editorial-team@simplywallst.com.
