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While small-cap stocks, such as Green Brick Partners, Inc. (NASDAQ:GRBK) with its market cap of US$473m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is essential, 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, potential investors would need to take a closer look, and I recommend you dig deeper yourself into GRBK here.
GRBK’s Debt (And Cash Flows)
Over the past year, GRBK has ramped up its debt from US$145m to US$211m , which accounts for long term debt. With this increase in debt, GRBK's cash and short-term investments stands at US$24m , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of GRBK’s operating efficiency ratios such as ROA here.
Can GRBK pay its short-term liabilities?
At the current liabilities level of US$84m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 8.75x. The current ratio is the number you get when you divide current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Is GRBK’s debt level acceptable?
GRBK is a relatively highly levered company with a debt-to-equity of 42%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies.
Although GRBK’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around GRBK'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 GRBK has been performing in the past. You should continue to research Green Brick Partners to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GRBK’s future growth? Take a look at our free research report of analyst consensus for GRBK’s outlook.
- Historical Performance: What has GRBK'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.
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.