Navios Maritime Partners LP. (NYSE:NMM) is a small-cap stock with a market capitalization of US$297.56M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since NMM is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I recommend you dig deeper yourself into NMM here.
Does NMM generate an acceptable amount of cash through operations?
NMM’s debt levels have fallen from US$523.78M to US$493.46M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, NMM currently has US$29.93M remaining in cash and short-term investments , ready to deploy into the business. On top of this, NMM has produced US$53.93M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 10.93%, meaning that NMM’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In NMM’s case, it is able to generate 0.11x cash from its debt capital.
Does NMM’s liquid assets cover its short-term commitments?
With current liabilities at US$54.25M, the company is not able to meet these obligations given the level of current assets of US$29.93M, with a current ratio of 0.55x below the prudent level of 3x.
Does NMM face the risk of succumbing to its debt-load?
With debt reaching 64.28% of equity, NMM may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since NMM is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, NMM has room for improvement to better cushion for events which may require debt repayment. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how NMM has been performing in the past. I recommend you continue to research Navios Maritime Partners to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for NMM’s future growth? Take a look at our free research report of analyst consensus for NMM’s outlook.
- 2. Valuation: What is NMM 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 NMM is currently mispriced by the market.
- 3. 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.