Are Comstock Mining Inc’s (NYSEMKT:LODE) Interest Costs Too High?
Comstock Mining Inc (AMEX:LODE) is a small-cap stock with a market capitalization of US$17.58M. 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? Given that LODE is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into LODE here.
Does LODE generate an acceptable amount of cash through operations?
LODE has built up its total debt levels in the last twelve months, from US$9.47M to US$10.26M , which is made up of current and long term debt. With this growth in debt, LODE’s cash and short-term investments stands at US$2.07M , ready to deploy 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 examine some of LODE’s operating efficiency ratios such as ROA here.
Can LODE meet its short-term obligations with the cash in hand?
With current liabilities at US$1.11M, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.97x. Though, anything about 3x may be excessive, since LODE may be leaving too much capital in low-earning investments.
Does LODE face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 86.50%, LODE can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since LODE is presently unprofitable, 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:
LODE’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. I admit this is a fairly basic analysis for LODE’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Comstock Mining to get a better picture of the stock by looking at:
1. Historical Performance: What has LODE’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.
