Is Cardlytics Inc (NASDAQ:CDLX) A Financially Sound Company?
While small-cap stocks, such as Cardlytics Inc (NASDAQ:CDLX) with its market cap of US$450.0m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Internet companies, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into CDLX here.
How does CDLX’s operating cash flow stack up against its debt?
Over the past year, CDLX has reduced its debt from US$54.0m to US$47.5m – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$50.5m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of CDLX’s operating efficiency ratios such as ROA here.
Can CDLX pay its short-term liabilities?
At the current liabilities level of US$52.5m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$117.5m, with a current ratio of 2.24x. Generally, for Internet companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CDLX service its debt comfortably?
With total debt exceeding equities, CDLX is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since CDLX is presently loss-making, 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.
Next Steps:
At its current level of cash flow coverage, CDLX has room for improvement to better cushion for events which may require debt repayment. However, 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 CDLX has been performing in the past. I suggest you continue to research Cardlytics to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CDLX’s future growth? Take a look at our free research report of analyst consensus for CDLX’s outlook.
Valuation: What is CDLX 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 CDLX 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 editorial-team@simplywallst.com.
