Investors are always looking for growth in small-cap stocks like BJ’s Restaurants Inc (NASDAQ:BJRI), with a market cap of US$1.24b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into BJRI here.
How does BJRI’s operating cash flow stack up against its debt?
BJRI has built up its total debt levels in the last twelve months, from US$148.00m to US$0 , which is made up of current and long term debt. With this growth in debt, BJRI’s cash and short-term investments stands at US$24.34m , ready to deploy into the business. Moreover, BJRI has generated cash from operations of US$107.04m during the same period of time, leading to an operating cash to total debt ratio of 65.47%, signalling that BJRI’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BJRI’s case, it is able to generate 0.65x cash from its debt capital.
Can BJRI pay its short-term liabilities?
With current liabilities at US$122.54m, it appears that the company is not able to meet these obligations given the level of current assets of US$60.33m, with a current ratio of 0.49x below the prudent level of 3x.
Can BJRI service its debt comfortably?
BJRI is a relatively highly levered company with a debt-to-equity of 58.97%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether BJRI 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 BJRI’s, case, the ratio of 9.56x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as BJRI’s high interest coverage is seen as responsible and safe practice.
Although BJRI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for BJRI’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research BJ’s Restaurants to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BJRI’s future growth? Take a look at our free research report of analyst consensus for BJRI’s outlook.
- Valuation: What is BJRI 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 BJRI 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 pass 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.