While small-cap stocks, such as MarineMax Inc (NYSE:HZO) with its market cap of US$509.62M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes vital. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into HZO here.
Does HZO generate enough cash through operations?
Over the past year, HZO has ramped up its debt from US$166.55M to US$254.18M made up of predominantly near term debt. With this rise in debt, the current cash and short-term investment levels stands at US$41.95M for investing into the business. Moreover, HZO has generated cash from operations of US$4.75M over the same time period, leading to an operating cash to total debt ratio of 1.87%, meaning that HZO’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 HZO’s case, it is able to generate 0.019x cash from its debt capital.
Can HZO pay its short-term liabilities?
Looking at HZO’s most recent US$334.69M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$473.76M, with a current ratio of 1.42x. For Specialty Retail 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.
Does HZO face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 93.80%, HZO can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether HZO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In HZO’s, case, the ratio of 6.01x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving HZO ample headroom to grow its debt facilities.
At its current level of cash flow coverage, HZO has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how HZO has been performing in the past. I recommend you continue to research MarineMax to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HZO’s future growth? Take a look at our free research report of analyst consensus for HZO’s outlook.
- Valuation: What is HZO 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 HZO 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.