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Investors are always looking for growth in small-cap stocks like Boingo Wireless, Inc. (NASDAQ:WIFI), with a market cap of US$1.1b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Wireless Telecom industry facing headwinds from current disruption, in particular ones that run negative earnings, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into WIFI here.
How much cash does WIFI generate through its operations?
WIFI’s debt levels surged from US$14m to US$29m over the last 12 months , which accounts for long term debt. With this rise in debt, WIFI’s cash and short-term investments stands at US$13m for investing into the business. Moreover, WIFI has produced cash from operations of US$101m during the same period of time, leading to an operating cash to total debt ratio of 354%, signalling that WIFI’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In WIFI’s case, it is able to generate 3.54x cash from its debt capital.
Can WIFI meet its short-term obligations with the cash in hand?
Looking at WIFI’s US$184m in current liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$53m, leading to a current ratio of 0.29x.
Is WIFI’s debt level acceptable?
With debt at 26% of equity, WIFI may be thought of as appropriately levered. WIFI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. WIFI’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
WIFI has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for WIFI’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Boingo Wireless to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WIFI’s future growth? Take a look at our free research report of analyst consensus for WIFI’s outlook.
- Valuation: What is WIFI 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 WIFI 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.