Investors are always looking for growth in small-cap stocks like Hornbeck Offshore Services Inc (NYSE:HOS), with a market cap of US$167.3m. 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, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into HOS here.
How does HOS’s operating cash flow stack up against its debt?
HOS has built up its total debt levels in the last twelve months, from US$1.01b to US$1.08b , which is made up of current and long term debt. With this rise in debt, HOS’s cash and short-term investments stands at US$109.1m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of HOS’s operating efficiency ratios such as ROA here.
Does HOS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$60.8m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3x. 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.
Does HOS face the risk of succumbing to its debt-load?
With debt reaching 79.4% of equity, HOS may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
HOS’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 HOS has company-specific issues impacting its capital structure decisions. I suggest you continue to research Hornbeck Offshore Services to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HOS’s future growth? Take a look at our free research report of analyst consensus for HOS’s outlook.
- Valuation: What is HOS 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 HOS 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.
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 firstname.lastname@example.org.