Amicus Therapeutics, Inc. (NASDAQ:FOLD) is a small-cap stock with a market capitalization of US$3.1b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that FOLD is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into FOLD here.
Does FOLD Produce Much Cash Relative To Its Debt?
FOLD has built up its total debt levels in the last twelve months, from US$164m to US$322m , which accounts for long term debt. With this increase in debt, FOLD's cash and short-term investments stands at US$504m to keep the business going. Moving on, operating cash flow was negative over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of FOLD’s operating efficiency ratios such as ROA here.
Can FOLD meet its short-term obligations with the cash in hand?
At the current liabilities level of US$86m, it appears that the company has been able to meet these obligations given the level of current assets of US$551m, with a current ratio of 6.4x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio greater than 3x may be considered high by some.
Is FOLD’s debt level acceptable?
With debt reaching 94% of equity, FOLD may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since FOLD 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.
FOLD’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around FOLD's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how FOLD has been performing in the past. I recommend you continue to research Amicus Therapeutics to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FOLD’s future growth? Take a look at our free research report of analyst consensus for FOLD’s outlook.
- Valuation: What is FOLD 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 FOLD 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.
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