Comstock Holding Companies Inc (NASDAQ:CHCI) is a small-cap stock with a market capitalization of US$5.64M. 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? Companies operating in the Consumer Durables industry facing headwinds from current disruption, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into CHCI here.
Does CHCI generate enough cash through operations?
CHCI has sustained its debt level by about US$43.70M over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, CHCI’s cash and short-term investments stands at US$5.76M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of CHCI’s operating efficiency ratios such as ROA here.
Can CHCI pay its short-term liabilities?
With current liabilities at US$45.17M, the company has been able to meet these obligations given the level of current assets of US$57.45M, with a current ratio of 1.27x. Usually, for Consumer Durables companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is CHCI’s debt level acceptable?
With total debt exceeding equities, CHCI is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since CHCI is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, CHCI has room for improvement to better cushion for events which may require debt repayment. 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 CHCI has been performing in the past. I suggest you continue to research Comstock Holding Companies to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has CHCI’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.
- 2. 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.