Civeo Corporation (NYSE:CVEO) is a small-cap stock with a market capitalization of US$462m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since CVEO is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into CVEO here.
Does CVEO produce enough cash relative to debt?
Over the past year, CVEO has ramped up its debt from US$316m to US$427m , which is made up of current and long term debt. With this growth in debt, CVEO’s cash and short-term investments stands at US$5m , ready to deploy into the business. Additionally, CVEO has generated cash from operations of US$56m over the same time period, resulting in an operating cash to total debt ratio of 13%, indicating that CVEO’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In CVEO’s case, it is able to generate 0.13x cash from its debt capital.
Can CVEO pay its short-term liabilities?
With current liabilities at US$84m, the company has been able to meet these commitments with a current assets level of US$130m, leading to a 1.55x current account ratio. Generally, for Commercial Services companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is CVEO’s debt level acceptable?
With a debt-to-equity ratio of 74%, CVEO can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since CVEO is presently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
CVEO’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 CVEO has been performing in the past. I suggest you continue to research Civeo to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CVEO’s future growth? Take a look at our free research report of analyst consensus for CVEO’s outlook.
- Valuation: What is CVEO 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 CVEO 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.
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