Investors are always looking for growth in small-cap stocks like Aqua Metals Inc (NASDAQ:AQMS), with a market cap of US$94.6m. However, an important fact which most ignore is: how financially healthy is the business? Since AQMS is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I suggest you dig deeper yourself into AQMS here.
How does AQMS’s operating cash flow stack up against its debt?
AQMS’s debt levels surged from US$10.1m to US$11.3m over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$36.8m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 take a look at some of AQMS’s operating efficiency ratios such as ROA here.
Can AQMS pay its short-term liabilities?
Looking at AQMS’s most recent US$6.2m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.26x. However, a ratio greater than 3x may be considered as too high, as AQMS could be holding too much capital in a low-return investment environment.
Can AQMS service its debt comfortably?
With a debt-to-equity ratio of 15.8%, AQMS’s debt level may be seen as prudent. AQMS is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with AQMS, and the company has plenty of headroom and ability to raise debt should it need to in the future.
AQMS’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for AQMS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Aqua Metals to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AQMS’s future growth? Take a look at our free research report of analyst consensus for AQMS’s outlook.
- Valuation: What is AQMS 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 AQMS 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.