Forum Energy Technologies Inc (NYSE:FET): Time For A Financial Health Check
Forum Energy Technologies Inc (NYSE:FET) is a small-cap stock with a market capitalization of US$1.70B. 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? Companies operating in the Energy Services industry, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into FET here.
How does FET’s operating cash flow stack up against its debt?
FET’s debt level has been constant at around US$396.87M over the previous year – this includes both the current and long-term debt. At this stable level of debt, FET currently has US$234.42M remaining in cash and short-term investments for investing into the business. Moreover, FET has generated cash from operations of US$64.74M in the last twelve months, resulting in an operating cash to total debt ratio of 16.31%, indicating that FET’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In FET’s case, it is able to generate 0.16x cash from its debt capital.
Does FET’s liquid assets cover its short-term commitments?
At the current liabilities level of US$141.85M liabilities, the company has been able to meet these commitments with a current assets level of US$749.72M, leading to a 5.29x current account ratio. However, anything above 3x is considered high and could mean that FET has too much idle capital in low-earning investments.
Does FET face the risk of succumbing to its debt-load?
FET’s level of debt is appropriate relative to its total equity, at 33.88%. This range is considered safe as FET is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. FET’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
FET’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure FET has company-specific issues impacting its capital structure decisions. I suggest you continue to research Forum Energy Technologies to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for FET’s future growth? Take a look at our free research report of analyst consensus for FET’s outlook.
2. Valuation: What is FET 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 FET 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.
