Huron Consulting Group Inc (NASDAQ:HURN): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Huron Consulting Group Inc (NASDAQ:HURN), with a market cap of US$997m. However, an important fact which most ignore is: how financially healthy is the business? Given that HURN is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into HURN here.
How much cash does HURN generate through its operations?
HURN has shrunken its total debt levels in the last twelve months, from US$401m to US$353m , which is made up of current and long term debt. With this debt repayment, HURN currently has US$11m remaining in cash and short-term investments for investing into the business. Additionally, HURN has produced US$83m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 24%, meaning that HURN’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In HURN’s case, it is able to generate 0.24x cash from its debt capital.
Can HURN meet its short-term obligations with the cash in hand?
At the current liabilities level of US$136m liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$210m, leading to a 1.54x current account ratio. Usually, for Professional Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can HURN service its debt comfortably?
With debt reaching 68% of equity, HURN 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. However, since HURN is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
HURN’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 proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how HURN has been performing in the past. I recommend you continue to research Huron Consulting Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HURN’s future growth? Take a look at our free research report of analyst consensus for HURN’s outlook.
Valuation: What is HURN 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 HURN 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 editorial-team@simplywallst.com.
