Is Hi-Crush Partners LP’s (NYSE:HCLP) Balance Sheet A Threat To Its Future?
Investors are always looking for growth in small-cap stocks like Hi-Crush Partners LP (NYSE:HCLP), with a market cap of $1.13B. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Energy Services industry, even ones that are profitable, tend to be high risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into HCLP here.
How does HCLP’s operating cash flow stack up against its debt?
HCLP’s debt levels have fallen from $250.0M to $196.4M over the last 12 months , which is made up of current and long term debt. With this debt payback, HCLP currently has $4.3M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of HCLP’s operating efficiency ratios such as ROA here.
Can HCLP meet its short-term obligations with the cash in hand?
At the current liabilities level of $30.2M liabilities, the company has been able to meet these obligations given the level of current assets of $84.2M, with a current ratio of 2.79x. Generally, for Energy Services companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is HCLP’s debt level acceptable?
HCLP’s level of debt is appropriate relative to its total equity, at 24.63%. HCLP is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether HCLP 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 HCLP’s, case, the ratio of 3.94x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving HCLP ample headroom to grow its debt facilities.
Next Steps:
HCLP’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. I admit this is a fairly basic analysis for HCLP’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Hi-Crush Partners to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for HCLP’s future growth? Take a look at our free research report of analyst consensus for HCLP’s outlook.
2. Valuation: What is HCLP 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 HCLP 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.
