What Investors Should Know About Comp SA.’s (WSE:CMP) Financial Strength
Investors are always looking for growth in small-cap stocks like Comp SA. (WSE:CMP), with a market cap of ZŁ327.56M. However, an important fact which most ignore is: how financially healthy is the business? IT companies, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into CMP here.
How does CMP’s operating cash flow stack up against its debt?
CMP has built up its total debt levels in the last twelve months, from ZŁ197.67M to ZŁ208.86M , which comprises of short- and long-term debt. With this rise in debt, CMP currently has ZŁ37.35M remaining in cash and short-term investments for investing into the business. Moreover, CMP has produced ZŁ15.62M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 7.48%, indicating that CMP’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CMP’s case, it is able to generate 0.075x cash from its debt capital.
Can CMP meet its short-term obligations with the cash in hand?
Looking at CMP’s most recent ZŁ308.46M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.09x. Usually, for IT companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does CMP face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 46.67%, CMP can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if CMP’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 CMP, the ratio of 2.94x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
At its current level of cash flow coverage, CMP has room for improvement to better cushion for events which may require debt repayment. 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 CMP has been performing in the past. I recommend you continue to research Comp to get a better picture of the stock by looking at:
Historical Performance: What has CMP’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
