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Investors are always looking for growth in small-cap stocks like 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), with a market cap of US$1.1b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Online Retail industry facing headwinds from current disruption, even ones that are profitable, are more likely to be 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, this commentary is still very high-level, so I recommend you dig deeper yourself into FLWS here.
How does FLWS’s operating cash flow stack up against its debt?
FLWS has shrunken its total debt levels in the last twelve months, from US$106m to US$98m , which also accounts for long term debt. With this reduction in debt, FLWS currently has US$258m remaining in cash and short-term investments for investing into the business. On top of this, FLWS has produced cash from operations of US$84m over the same time period, resulting in an operating cash to total debt ratio of 85%, signalling that FLWS’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 FLWS’s case, it is able to generate 0.85x cash from its debt capital.
Can FLWS pay its short-term liabilities?
Looking at FLWS’s US$204m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.92x. Generally, for Online Retail companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does FLWS face the risk of succumbing to its debt-load?
With debt at 28% of equity, FLWS may be thought of as appropriately levered. This range is considered safe as FLWS is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if FLWS’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 FLWS, the ratio of 12.95x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving FLWS ample headroom to grow its debt facilities.
FLWS’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, 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 FLWS has company-specific issues impacting its capital structure decisions. I suggest you continue to research 1-800-FLOWERS.COM to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FLWS’s future growth? Take a look at our free research report of analyst consensus for FLWS’s outlook.
- Valuation: What is FLWS 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 FLWS 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.