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Investors are always looking for growth in small-cap stocks like The Hain Celestial Group, Inc. (NASDAQ:HAIN), with a market cap of US$2.4b. However, an important fact which most ignore is: how financially healthy is the business? Given that HAIN is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into HAIN here.
HAIN’s Debt (And Cash Flows)
HAIN's debt levels have fallen from US$767m to US$728m over the last 12 months , which also accounts for long term debt. With this debt payback, the current cash and short-term investment levels stands at US$38m , ready to be used for running the business. Additionally, HAIN has generated US$79m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 11%, signalling that HAIN’s current level of operating cash is not high enough to cover debt.
Can HAIN pay its short-term liabilities?
At the current liabilities level of US$439m, the company has been able to meet these commitments with a current assets level of US$951m, leading to a 2.17x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Food companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does HAIN face the risk of succumbing to its debt-load?
HAIN is a relatively highly levered company with a debt-to-equity of 46%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since HAIN is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although HAIN’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 HAIN'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 HAIN has been performing in the past. You should continue to research Hain Celestial Group to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HAIN’s future growth? Take a look at our free research report of analyst consensus for HAIN’s outlook.
- Valuation: What is HAIN 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 HAIN 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.