Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as National Vision Holdings, Inc. (NASDAQ:EYE), with a market cap of US$2.1b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at EYE’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of National Vision Holdings’s financial health, so you should conduct further analysis into EYE here.
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EYE’s Debt (And Cash Flows)
EYE has built up its total debt levels in the last twelve months, from US$579m to US$965m , which accounts for long term debt. With this growth in debt, EYE currently has US$73m remaining in cash and short-term investments to keep the business going. On top of this, EYE has generated cash from operations of US$112m during the same period of time, leading to an operating cash to total debt ratio of 12%, meaning that EYE’s current level of operating cash is not high enough to cover debt.
Does EYE’s liquid assets cover its short-term commitments?
Looking at EYE’s US$298m in current liabilities, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.91x. The current ratio is calculated by dividing current assets by current liabilities.
Is EYE’s debt level acceptable?
With total debt exceeding equity, EYE is considered a highly levered company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In EYE's case, the ratio of 1.54x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
EYE’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven't considered other factors such as how EYE has been performing in the past. You should continue to research National Vision Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EYE’s future growth? Take a look at our free research report of analyst consensus for EYE’s outlook.
- Valuation: What is EYE 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 EYE 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.