NanoString Technologies Inc (NASDAQ:NSTG) is a small-cap stock with a market capitalization of US$244.74M. 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 Life Sciences industry, especially ones that are currently loss-making, tend to be high risk. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into NSTG here.
How does NSTG’s operating cash flow stack up against its debt?
Over the past year, NSTG has maintained its debt levels at around US$48.93M comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$77.56M 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 examine some of NSTG’s operating efficiency ratios such as ROA here.
Can NSTG pay its short-term liabilities?
With current liabilities at US$35.92M, it appears that the company has been able to meet these obligations given the level of current assets of US$121.92M, with a current ratio of 3.39x. Though, a ratio greater than 3x may be considered as too high, as NSTG could be holding too much capital in a low-return investment environment.
Can NSTG service its debt comfortably?
Since total debt levels have outpaced equities, NSTG is a highly 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 NSTG 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.
NSTG’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. 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 NSTG has been performing in the past. I suggest you continue to research NanoString Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NSTG’s future growth? Take a look at our free research report of analyst consensus for NSTG’s outlook.
- Historical Performance: What has NSTG’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.
- 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.