How Financially Strong Is Labixiaoxin Snacks Group Limited (HKG:1262)?
While small-cap stocks, such as Labixiaoxin Snacks Group Limited (SEHK:1262) with its market cap of HK$837.26M, 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 1262 is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I recommend you dig deeper yourself into 1262 here.
Does 1262 generate enough cash through operations?
1262’s debt levels surged from CN¥276.02M to CN¥751.07M over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, 1262 currently has CN¥227.30M remaining in cash and short-term investments , ready to deploy 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 take a look at some of 1262’s operating efficiency ratios such as ROA here.
Can 1262 meet its short-term obligations with the cash in hand?
With current liabilities at CN¥862.05M, it seems that the business has been able to meet these obligations given the level of current assets of CN¥871.07M, with a current ratio of 1.01x. For Food companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is 1262’s debt level acceptable?
1262 is a relatively highly levered company with a debt-to-equity of 72.86%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since 1262 is currently unprofitable, 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:
At its current level of cash flow coverage, 1262 has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 1262’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Labixiaoxin Snacks Group to get a more holistic view of the stock by looking at:
1. Historical Performance: What has 1262’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.
2. 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.
