While small-cap stocks, such as Pioneer Energy Services Corp (NYSE:PES) with its market cap of US$244.81M, 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 Energy Services industry, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into PES here.
Does PES generate enough cash through operations?
PES’s debt levels surged from US$339.47M to US$461.67M over the last 12 months , which is made up of current and long term debt. With this increase in debt, PES currently has US$73.64M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 take a look at some of PES’s operating efficiency ratios such as ROA here.
Does PES’s liquid assets cover its short-term commitments?
With current liabilities at US$84.91M, the company has been able to meet these obligations given the level of current assets of US$215.56M, with a current ratio of 2.54x. Generally, for Energy Services companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does PES face the risk of succumbing to its debt-load?
With total debt exceeding equities, PES is considered a highly levered 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 PES is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, PES has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure PES has company-specific issues impacting its capital structure decisions. You should continue to research Pioneer Energy Services to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for PES’s future growth? Take a look at our free research report of analyst consensus for PES’s outlook.
- 2. Valuation: What is PES 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 PES is currently mispriced by the market.
- 3. 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.