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Investors are always looking for growth in small-cap stocks like Calavo Growers, Inc. (NASDAQ:CVGW), with a market cap of US$1.5b. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, this is not a comprehensive overview, so I recommend you dig deeper yourself into CVGW here.
Does CVGW Produce Much Cash Relative To Its Debt?
Over the past year, CVGW has ramped up its debt from US$32m to US$39m . With this growth in debt, the current cash and short-term investment levels stands at US$4.2m to keep the business going. On top of this, CVGW has generated cash from operations of US$51m during the same period of time, resulting in an operating cash to total debt ratio of 129%, meaning that CVGW’s debt is appropriately covered by operating cash.
Can CVGW pay its short-term liabilities?
With current liabilities at US$106m, the company has been able to meet these obligations given the level of current assets of US$131m, with a current ratio of 1.23x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Food companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Is CVGW’s debt level acceptable?
With debt at 15% of equity, CVGW may be thought of as appropriately levered. This range is considered safe as CVGW is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
CVGW’s high cash coverage and low 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. I admit this is a fairly basic analysis for CVGW's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Calavo Growers to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CVGW’s future growth? Take a look at our free research report of analyst consensus for CVGW’s outlook.
- Valuation: What is CVGW 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 CVGW 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.