While small-cap stocks, such as American Electric Technologies Inc (NASDAQ:AETI) with its market cap of US$11.27M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since AETI is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into AETI here.
Does AETI generate enough cash through operations?
AETI’s debt level has been constant at around US$5.70M over the previous year – this includes both the current and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$2.13M , 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. For this article’s sake, I won’t be looking at this today, but you can examine some of AETI’s operating efficiency ratios such as ROA here.
Can AETI meet its short-term obligations with the cash in hand?
Looking at AETI’s most recent US$12.90M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$16.20M, leading to a 1.26x current account ratio. Generally, for Electrical companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can AETI service its debt comfortably?
With a debt-to-equity ratio of 55.07%, AETI can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since AETI is currently unprofitable, 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.
At its current level of cash flow coverage, AETI has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how AETI has been performing in the past. You should continue to research American Electric Technologies to get a more holistic view of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Valuation: What is AETI worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in this free research report helps visualize whether AETI is currently mispriced by the market.
- 2. Historical Performance: What has AETI’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 AETI’s historicals for more clarity.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.