Five9 Inc (NASDAQ:FIVN): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Five9 Inc (NASDAQ:FIVN), with a market cap of US$1.62B. However, an important fact which most ignore is: how financially healthy is the business? Internet companies, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes vital. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into FIVN here.
Does FIVN generate an acceptable amount of cash through operations?
Over the past year, FIVN has maintained its debt levels at around US$46.74M – this includes both the current and long-term debt. At this current level of debt, FIVN’s cash and short-term investments stands at US$68.95M for investing into the business. Additionally, FIVN has generated cash from operations of US$11.11M during the same period of time, leading to an operating cash to total debt ratio of 23.76%, meaning that FIVN’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In FIVN’s case, it is able to generate 0.24x cash from its debt capital.
Does FIVN’s liquid assets cover its short-term commitments?
With current liabilities at US$39.52M, the company has been able to meet these commitments with a current assets level of US$92.84M, leading to a 2.35x current account ratio. For Internet companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is FIVN’s debt level acceptable?
With a debt-to-equity ratio of 99.80%, FIVN can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since FIVN is presently unprofitable, sustainability of its current state of operations becomes a concern. 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, FIVN 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. Keep in mind I haven’t considered other factors such as how FIVN has been performing in the past. You should continue to research Five9 to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for FIVN’s future growth? Take a look at our free research report of analyst consensus for FIVN’s outlook.
2. Valuation: What is FIVN 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 FIVN 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.
