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Is argenx SE’s (EBR:ARGX) Liquidity Good Enough?

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like argenx SE (EBR:ARGX), with a market cap of €2.5b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at ARGX’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into ARGX here.

See our latest analysis for argenx

Is ARGX’s debt level acceptable?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For ARGX, the debt-to-equity ratio is zero, meaning that the company has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with ARGX, and the company has plenty of headroom and ability to raise debt should it need to in the future.

ENXTBR:ARGX Historical Debt October 25th 18
ENXTBR:ARGX Historical Debt October 25th 18

Can ARGX pay its short-term liabilities?

Given zero long-term debt on its balance sheet, argenx has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at €27m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 13.16x. Having said that, anything above 3x may be considered excessive by some investors.

Next Steps:

ARGX has zero-debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, though, some degree of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure ARGX has company-specific issues impacting its capital structure decisions. I recommend you continue to research argenx to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ARGX’s future growth? Take a look at our free research report of analyst consensus for ARGX’s outlook.

  2. Historical Performance: What has ARGX’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.

  3. 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.