Is i3 Verticals, Inc. (NASDAQ:IIIV) A Financially Sound Company?
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Investors are always looking for growth in small-cap stocks like i3 Verticals, Inc. (NASDAQ:IIIV), with a market cap of US$653m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the IT industry, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into IIIV here.
Does IIIV produce enough cash relative to debt?
Over the past year, IIIV has reduced its debt from US$111m to US$37m , which also accounts for long term debt. With this debt payback, the current cash and short-term investment levels stands at US$572k , ready to deploy into the business. On top of this, IIIV has generated US$18m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 49%, signalling that IIIV’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In IIIV’s case, it is able to generate 0.49x cash from its debt capital.
Does IIIV’s liquid assets cover its short-term commitments?
At the current liabilities level of US$26m, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.63x.
Can IIIV service its debt comfortably?
With a debt-to-equity ratio of 33%, IIIV’s debt level may be seen as prudent. This range is considered safe as IIIV is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether IIIV 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 IIIV’s, case, the ratio of 2.06x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as IIIV’s low interest coverage already puts the company at higher risk of default.
Next Steps:
IIIV has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for IIIV’s financial health. Other important fundamentals need to be considered alongside. You should continue to research i3 Verticals to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for IIIV’s future growth? Take a look at our free research report of analyst consensus for IIIV’s outlook.
Valuation: What is IIIV 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 IIIV 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.
