How Financially Strong Is Atento SA. (NYSE:ATTO)?
Investors are always looking for growth in small-cap stocks like Atento SA. (NYSE:ATTO), with a market cap of US$702.14M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into ATTO here.
How does ATTO’s operating cash flow stack up against its debt?
ATTO’s debt levels have fallen from US$576.25M to US$535.12M over the last 12 months , which is made up of current and long term debt. With this debt repayment, ATTO currently has US$194.04M remaining in cash and short-term investments for investing into the business. Moreover, ATTO has generated US$141.95M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 26.53%, meaning that ATTO’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ATTO’s case, it is able to generate 0.27x cash from its debt capital.
Does ATTO’s liquid assets cover its short-term commitments?
At the current liabilities level of US$348.61M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$574.67M, leading to a 1.65x current account ratio. Usually, for Commercial Services companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is ATTO’s debt level acceptable?
Since total debt levels have outpaced equities, ATTO is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if ATTO’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ATTO, the ratio of 2.18x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
Although ATTO’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how ATTO has been performing in the past. I suggest you continue to research Atento to get a more holistic view of the small-cap by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for ATTO’s future growth? Take a look at our free research report of analyst consensus for ATTO’s outlook.
2. Valuation: What is ATTO 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 ATTO 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.
