Is Ameresco Inc’s (NYSE:AMRC) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like Ameresco Inc (NYSE:AMRC), with a market cap of US$571m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into AMRC here.
Does AMRC produce enough cash relative to debt?
AMRC has built up its total debt levels in the last twelve months, from US$397m to US$490m – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$28m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of AMRC’s operating efficiency ratios such as ROA here.
Can AMRC meet its short-term obligations with the cash in hand?
Looking at AMRC’s most recent US$187m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$294m, with a current ratio of 1.57x. For Construction companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Can AMRC service its debt comfortably?
AMRC is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if AMRC’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 AMRC, the ratio of 4.54x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as AMRC’s high interest coverage is seen as responsible and safe practice.
Next Steps:
AMRC’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. Though, 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 AMRC has been performing in the past. I suggest you continue to research Ameresco to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AMRC’s future growth? Take a look at our free research report of analyst consensus for AMRC’s outlook.
Historical Performance: What has AMRC’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
