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Stocks with market capitalization between $2B and $10B, such as Halozyme Therapeutics, Inc. (NASDAQ:HALO) with a size of US$2.1b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at HALO’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into HALO here.
HALO’s Debt (And Cash Flows)
HALO's debt levels have fallen from US$185m to US$114m over the last 12 months – this includes long-term debt. With this debt payback, HALO currently has US$329m remaining in cash and short-term investments to keep the business going. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of HALO’s operating efficiency ratios such as ROA here.
Does HALO’s liquid assets cover its short-term commitments?
At the current liabilities level of US$139m, the company has been able to meet these obligations given the level of current assets of US$409m, with a current ratio of 2.95x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Biotechs companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does HALO face the risk of succumbing to its debt-load?
HALO is a relatively highly levered company with a debt-to-equity of 44%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since HALO is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
HALO’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for HALO's financial health. Other important fundamentals need to be considered alongside. You should continue to research Halozyme Therapeutics to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HALO’s future growth? Take a look at our free research report of analyst consensus for HALO’s outlook.
- Valuation: What is HALO 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 HALO 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.