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Are Identiv Inc’s (NASDAQ:INVE) Interest Costs Too High?

Investors are always looking for growth in small-cap stocks like Identiv Inc (NASDAQ:INVE), with a market cap of US$95.2m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Electronic industry, in particular ones that run negative earnings, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into INVE here.

How much cash does INVE generate through its operations?

INVE’s debt level has been constant at around US$15.6m over the previous year – this includes both the current and long-term debt. At this current level of debt, INVE currently has US$17.9m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of INVE’s operating efficiency ratios such as ROA here.

Does INVE’s liquid assets cover its short-term commitments?

With current liabilities at US$31.2m, the company has been able to meet these obligations given the level of current assets of US$46.5m, with a current ratio of 1.49x. For Electronic companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NasdaqCM:INVE Historical Debt September 18th 18
NasdaqCM:INVE Historical Debt September 18th 18

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

INVE is a relatively highly levered company with a debt-to-equity of 51.9%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since INVE 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:

INVE’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how INVE has been performing in the past. You should continue to research Identiv to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for INVE’s future growth? Take a look at our free research report of analyst consensus for INVE’s outlook.

  2. Valuation: What is INVE 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 INVE 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.

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