What does Select Interior Concepts Inc’s (NASDAQ:SIC) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as Select Interior Concepts Inc (NASDAQ:SIC) with its market cap of US$231m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since SIC is loss-making right now, it’s crucial 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. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into SIC here.
How does SIC’s operating cash flow stack up against its debt?
SIC’s debt levels surged from US$109m to US$148m over the last 12 months , which includes long-term debt. With this increase in debt, SIC’s cash and short-term investments stands at US$3.9m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of SIC’s operating efficiency ratios such as ROA here.
Does SIC’s liquid assets cover its short-term commitments?
At the current liabilities level of US$84m, it seems that the business has been able to meet these obligations given the level of current assets of US$188m, with a current ratio of 2.25x. For Consumer Services companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Is SIC’s debt level acceptable?
SIC is a relatively highly levered company with a debt-to-equity of 98%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since SIC is currently 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.
Next Steps:
Although SIC’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around SIC’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure SIC has company-specific issues impacting its capital structure decisions. You should continue to research Select Interior Concepts to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for SIC’s future growth? Take a look at our free research report of analyst consensus for SIC’s outlook.
Historical Performance: What has SIC’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 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.
