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Is eXp World Holdings (NASDAQ:EXPI) Using Debt In A Risky Way?

Simply Wall St

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies eXp World Holdings, Inc. (NASDAQ:EXPI) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for eXp World Holdings

What Is eXp World Holdings's Debt?

As you can see below, at the end of June 2019, eXp World Holdings had US$2.73m of debt, up from a year ago. Click the image for more detail. But on the other hand it also has US$31.5m in cash, leading to a US$28.8m net cash position.

NasdaqGM:EXPI Historical Debt, September 28th 2019

A Look At eXp World Holdings's Liabilities

The latest balance sheet data shows that eXp World Holdings had liabilities of US$62.8m due within a year, and liabilities of US$2.00m falling due after that. Offsetting this, it had US$31.5m in cash and US$50.8m in receivables that were due within 12 months. So it can boast US$17.5m more liquid assets than total liabilities.

This surplus suggests that eXp World Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, eXp World Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if eXp World Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year eXp World Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by154%, to US$731m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is eXp World Holdings?

Although eXp World Holdings had negative earnings before interest and tax (EBIT) over the last twelve months, it generated positive free cash flow of US$33m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 154% is a good sign. We'd see further strong growth as an optimistic indication. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting eXp World Holdings insider transactions.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.