Investors are always looking for growth in small-cap stocks like Safe Bulkers, Inc. (NYSE:SB), with a market cap of US$198m. However, an important fact which most ignore is: how financially healthy is the business? Given that SB is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into SB here.
How does SB’s operating cash flow stack up against its debt?
Over the past year, SB has maintained its debt levels at around US$552m – this includes long-term debt. At this constant level of debt, SB currently has US$42m remaining in cash and short-term investments , ready to deploy into the business. Moreover, SB has produced cash from operations of US$74m in the last twelve months, resulting in an operating cash to total debt ratio of 13%, indicating that SB’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires a positive net income. In SB’s case, it is able to generate 0.13x cash from its debt capital.
Can SB pay its short-term liabilities?
With current liabilities at US$79m, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.75x.
Is SB’s debt level acceptable?
Since total debt levels have outpaced equities, SB 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. Though, since SB is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although SB’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how SB has been performing in the past. I recommend you continue to research Safe Bulkers to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SB’s future growth? Take a look at our free research report of analyst consensus for SB’s outlook.
- Valuation: What is SB 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 SB 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 email@example.com.