What Investors Should Know About Hi-Crush Partners LP’s (NYSE:HCLP) Financial Strength
While small-cap stocks, such as Hi-Crush Partners LP (NYSE:HCLP) with its market cap of US$1.05b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Energy Services companies, even ones that are profitable, tend to be high risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into HCLP here.
How much cash does HCLP generate through its operations?
HCLP’s debt level has been constant at around US$197.42m over the previous year – this includes both the current and long-term debt. At this stable level of debt, HCLP currently has US$5.66m remaining in cash and short-term investments for investing into the business. On top of this, HCLP has generated cash from operations of US$96.27m in the last twelve months, resulting in an operating cash to total debt ratio of 48.76%, indicating that HCLP’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In HCLP’s case, it is able to generate 0.49x cash from its debt capital.
Can HCLP meet its short-term obligations with the cash in hand?
At the current liabilities level of US$96.48m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.99x. For Energy Services companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can HCLP service its debt comfortably?
With debt at 24.18% of equity, HCLP may be thought of as appropriately levered. HCLP is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if HCLP’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 HCLP, the ratio of 13.22x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as HCLP’s high interest coverage is seen as responsible and safe practice.
Next Steps:
HCLP has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure HCLP has company-specific issues impacting its capital structure decisions. You should continue to research Hi-Crush Partners to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HCLP’s future growth? Take a look at our free research report of analyst consensus for HCLP’s outlook.
Valuation: What is HCLP 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 HCLP 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.
