What Investors Should Know About Milestone Builder Holdings Limited’s (HKG:1667) Financial Strength
While small-cap stocks, such as Milestone Builder Holdings Limited (SEHK:1667) with its market cap of HK$348.00M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into 1667 here.
Does 1667 generate enough cash through operations?
1667’s debt levels surged from HK$38.32M to HK$63.09M over the last 12 months made up of predominantly near term debt. With this growth in debt, 1667 currently has HK$16.20M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of 1667’s operating efficiency ratios such as ROA here.
Can 1667 meet its short-term obligations with the cash in hand?
Looking at 1667’s most recent HK$195.50M liabilities, it appears that the company has been able to meet these commitments with a current assets level of HK$228.83M, leading to a 1.17x current account ratio. Usually, for Construction companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 1667 face the risk of succumbing to its debt-load?
With debt at 35.94% of equity, 1667 may be thought of as appropriately levered. 1667 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if 1667’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 1667, the ratio of 10.95x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving 1667 ample headroom to grow its debt facilities.
Next Steps:
1667’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how 1667 has been performing in the past. You should continue to research Milestone Builder Holdings to get a more holistic view of the stock by looking at:
1. Historical Performance: What has 1667’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.
2. 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.
