What Investors Should Know About MobileIron Inc’s (NASDAQ:MOBL) Financial Strength
MobileIron Inc (NASDAQ:MOBL), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is MOBL will have to follow strict debt obligations which will reduce its financial flexibility. While zero-debt makes the due diligence for potential investors less nerve-racking, it poses a new question: how should they assess the financial strength of such companies? I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
Check out our latest analysis for MobileIron
Is financial flexibility worth the lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. Though, the trade-offs are that lenders require stricter capital management requirements, in addition to having a higher claim on company assets relative to shareholders. Either MOBL does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. A single-digit revenue growth of 5.2% for MOBL is considerably low for a small-cap company. More capital can help the business grow faster. If MOBL is not expecting exceptional future growth, then the decision to avoid may cost shareholders in the long term.
Does MOBL’s liquid assets cover its short-term commitments?
Since MobileIron doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at MOBL’s most recent US$102.3m liabilities, the company has been able to meet these obligations given the level of current assets of US$155.1m, with a current ratio of 1.52x. Generally, for Software companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Next Steps:
As a high-growth company, it may be beneficial for MOBL to have some financial flexibility, hence zero-debt. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. In the future, MOBL’s financial situation may change. I admit this is a fairly basic analysis for MOBL’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research MobileIron to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for MOBL’s future growth? Take a look at our free research report of analyst consensus for MOBL’s outlook.
Valuation: What is MOBL 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 MOBL 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
