Stocks with market capitalization between $2B and $10B, such as AppFolio, Inc. (NASDAQ:APPF) with a size of US$2.5b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at APPF’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into APPF here.
APPF’s Debt (And Cash Flows)
Over the past year, APPF has borrowed debt capital of around US$50m including long-term debt. With this ramp up in debt, APPF currently has US$91m remaining in cash and short-term investments to keep the business going. Moreover, APPF has generated US$36m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 73%, indicating that APPF’s debt is appropriately covered by operating cash.
Can APPF meet its short-term obligations with the cash in hand?
Looking at APPF’s US$28m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$108m, with a current ratio of 3.83x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Can APPF service its debt comfortably?
APPF is a relatively highly levered company with a debt-to-equity of 54%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible.
Although APPF’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around APPF’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure APPF has company-specific issues impacting its capital structure decisions. You should continue to research AppFolio to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for APPF’s future growth? Take a look at our free research report of analyst consensus for APPF’s outlook.
- Valuation: What is APPF 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 APPF 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.