How Financially Strong Is PAM Transportation Services Inc (NASDAQ:PTSI)?
PAM Transportation Services Inc (NASDAQ:PTSI) is a small-cap stock with a market capitalization of US$290.31m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into PTSI here.
Does PTSI produce enough cash relative to debt?
Over the past year, PTSI has maintained its debt levels at around US$178.54m comprising of short- and long-term debt. At this stable level of debt, PTSI’s cash and short-term investments stands at US$26.89m , ready to deploy into the business. On top of this, PTSI has produced cash from operations of US$50.48m over the same time period, resulting in an operating cash to total debt ratio of 28.27%, signalling that PTSI’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PTSI’s case, it is able to generate 0.28x cash from its debt capital.
Can PTSI pay its short-term liabilities?
Looking at PTSI’s most recent US$110.90m liabilities, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.92x, which is below the prudent industry ratio of 3x.
Is PTSI’s debt level acceptable?
With total debt exceeding equities, PTSI is considered a highly levered 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 check to see whether PTSI is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In PTSI’s, case, the ratio of 5.41x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as PTSI’s high interest coverage is seen as responsible and safe practice.
Next Steps:
PTSI’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure PTSI has company-specific issues impacting its capital structure decisions. I recommend you continue to research P.A.M. Transportation Services to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for PTSI’s future growth? Take a look at our free research report of analyst consensus for PTSI’s outlook.
Historical Performance: What has PTSI’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.
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.
