BBX Capital Corporation (NYSE:BBX): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like BBX Capital Corporation (NYSE:BBX), with a market cap of US$895.01M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I suggest you dig deeper yourself into BBX here.
Does BBX generate enough cash through operations?
BBX has sustained its debt level by about US$714.66M over the last 12 months made up of current and long term debt. At this constant level of debt, BBX’s cash and short-term investments stands at US$299.86M , ready to deploy into the business. Moreover, BBX has produced cash from operations of US$91.77M in the last twelve months, resulting in an operating cash to total debt ratio of 12.84%, meaning that BBX’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BBX’s case, it is able to generate 0.13x cash from its debt capital.
Can BBX meet its short-term obligations with the cash in hand?
At the current liabilities level of US$28.86M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$1.11B, with a current ratio of 38.44x. However, a ratio greater than 3x may be considered as too high, as BBX could be holding too much capital in a low-return investment environment.
Does BBX face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, BBX is a highly leveraged company. 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 BBX’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 BBX, the ratio of 2.81x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
BBX’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 will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how BBX has been performing in the past. You should continue to research BBX Capital to get a better picture 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. Future Outlook: What are well-informed industry analysts predicting for BBX’s future growth? Take a look at this free research report of analyst consensus for BBX’s outlook.
2. Valuation: What is BBX 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 BBX is currently mispriced by the market.
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.
