What does Net 1 UEPS Technologies Inc’s (NASDAQ:UEPS) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as Net 1 UEPS Technologies Inc (NASDAQ:UEPS) with its market cap of US$275m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the IT industry, even ones that are profitable, tend to be high risk. Assessing first and foremost the financial health is vital. 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 UEPS here.
How much cash does UEPS generate through its operations?
UEPS has sustained its debt level by about US$134m over the last 12 months comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$99m , ready to deploy into the business. On top of this, UEPS has generated cash from operations of US$150m in the last twelve months, leading to an operating cash to total debt ratio of 112%, meaning that UEPS’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In UEPS’s case, it is able to generate 1.12x cash from its debt capital.
Can UEPS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$310m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.38x. Usually, for IT companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does UEPS face the risk of succumbing to its debt-load?
With debt at 18% of equity, UEPS may be thought of as appropriately levered. UEPS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
UEPS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how UEPS has been performing in the past. I suggest you continue to research Net 1 UEPS Technologies to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for UEPS’s future growth? Take a look at our free research report of analyst consensus for UEPS’s outlook.
Valuation: What is UEPS 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 UEPS 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
