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Is Hooker Furniture Corporation (NASDAQ:HOFT) A Financially Sound Company?

Pam Parks

Investors are always looking for growth in small-cap stocks like Hooker Furniture Corporation (NASDAQ:HOFT), with a market cap of US$473.5m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Consumer Durables industry facing headwinds from current disruption, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into HOFT here.

How much cash does HOFT generate through its operations?

HOFT has shrunken its total debt levels in the last twelve months, from US$44.7m to US$39.6m , which comprises of short- and long-term debt. With this debt payback, HOFT currently has US$29.2m remaining in cash and short-term investments for investing into the business. Moreover, HOFT has generated cash from operations of US$29.3m in the last twelve months, resulting in an operating cash to total debt ratio of 74.1%, signalling that HOFT’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In HOFT’s case, it is able to generate 0.74x cash from its debt capital.

Can HOFT pay its short-term liabilities?

With current liabilities at US$59.8m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.64x. However, anything about 3x may be excessive, since HOFT may be leaving too much capital in low-earning investments.

NasdaqGS:HOFT Historical Debt September 17th 18

Does HOFT face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 16.3%, HOFT’s debt level may be seen as prudent. This range is considered safe as HOFT is not taking on too much debt obligation, which may be constraining for future growth. We can test if HOFT’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For HOFT, the ratio of 33.41x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as HOFT’s high interest coverage is seen as responsible and safe practice.

Next Steps:

HOFT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for HOFT’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Hooker Furniture to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for HOFT’s future growth? Take a look at our free research report of analyst consensus for HOFT’s outlook.
  2. Valuation: What is HOFT 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 HOFT 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 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 editorial-team@simplywallst.com.