Is Basic Energy Services Inc’s (NYSE:BAS) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like Basic Energy Services Inc (NYSE:BAS), with a market cap of US$529.41M. However, an important fact which most ignore is: how financially healthy is the business? Energy Services companies, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into BAS here.
How does BAS’s operating cash flow stack up against its debt?
Over the past year, BAS has reduced its debt from US$877.32M to US$223.22M – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$98.88M for investing 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of BAS’s operating efficiency ratios such as ROA here.
Does BAS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$139.82M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.89x. For Energy Services companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can BAS service its debt comfortably?
With debt reaching 90.30% of equity, BAS may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Next Steps:
BAS’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how BAS has been performing in the past. I recommend you continue to research Basic Energy Services to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for BAS’s future growth? Take a look at our free research report of analyst consensus for BAS’s outlook.
2. Valuation: What is BAS 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 BAS is currently mispriced by the market.
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 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.
