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How Financially Strong Is New Fortress Energy LLC (NASDAQ:NFE)?

Simply Wall St

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Investors are always looking for growth in small-cap stocks like New Fortress Energy LLC (NASDAQ:NFE), with a market cap of US$2.2b. However, an important fact which most ignore is: how financially healthy is the business? Given that NFE is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, this is just a partial view of the stock, and I suggest you dig deeper yourself into NFE here.

NFE’s Debt (And Cash Flows)

Over the past year, NFE has ramped up its debt from US$75m to US$273m , which includes long-term debt. With this rise in debt, NFE currently has US$80m remaining in cash and short-term investments to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of NFE’s operating efficiency ratios such as ROA here.

Does NFE’s liquid assets cover its short-term commitments?

At the current liabilities level of US$405m, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$154m, leading to a current ratio of 0.38x. The current ratio is the number you get when you divide current assets by current liabilities.

NasdaqGS:NFE Historical Debt, May 6th 2019

Does NFE face the risk of succumbing to its debt-load?

With debt reaching 97% of equity, NFE may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since NFE is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

Although NFE’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 NFE has been performing in the past. You should continue to research New Fortress Energy to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for NFE’s future growth? Take a look at our free research report of analyst consensus for NFE’s outlook.
  2. Valuation: What is NFE 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 NFE 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.

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.