Has Ellie Mae, Inc. (NYSE:ELLI) Got Enough Cash?
Mid-caps stocks, like Ellie Mae, Inc. (NYSE:ELLI) with a market capitalization of US$2.3b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine ELLI’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into ELLI here.
See our latest analysis for Ellie Mae
Can ELLI service its debt comfortably?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. The good news for investors is that Ellie Mae has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with ELLI, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ELLI meet its short-term obligations with the cash in hand?
Since Ellie Mae doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at ELLI’s US$68m in current 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 5.22x. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Next Steps:
ELLI has zero-debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, though, some degree of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how ELLI has performed in the past. I suggest you continue to research Ellie Mae to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ELLI’s future growth? Take a look at our free research report of analyst consensus for ELLI’s outlook.
Valuation: What is ELLI 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 ELLI 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.
