Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as PTC Therapeutics Inc (NASDAQ:PTCT), with a market cap of US$2.38b, often get neglected by retail investors. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. PTCT’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Therapeutics’s financial health, so you should conduct further analysis into PTCT here.
Does PTCT produce enough cash relative to debt?
PTCT’s debt levels surged from US$141.2m to US$148.9m over the last 12 months – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$296.1m , 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 assess some of PTCT’s operating efficiency ratios such as ROA here.
Can PTCT pay its short-term liabilities?
At the current liabilities level of US$86.5m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$375.6m, with a current ratio of 4.34x. Though, a ratio greater than 3x may be considered as too high, as PTCT could be holding too much capital in a low-return investment environment.
Does PTCT face the risk of succumbing to its debt-load?
PTCT is a relatively highly levered company with a debt-to-equity of 55.7%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since PTCT is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, PTCT 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 PTCT’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Therapeutics to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PTCT’s future growth? Take a look at our free research report of analyst consensus for PTCT’s outlook.
- Valuation: What is PTCT 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 PTCT is currently mispriced by the market.
- 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.