What Investors Should Know About PAVmed Inc’s (NASDAQ:PAVM) Financial Strength
While small-cap stocks, such as PAVmed Inc (NASDAQ:PAVM) with its market cap of US$17.16M, 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 Medical Equipment industry, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into PAVM here.
Does PAVM generate an acceptable amount of cash through operations?
PAVM has increased its debt level by about US$1.94M over the last 12 months – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$1.54M , 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 PAVM’s operating efficiency ratios such as ROA here.
Does PAVM’s liquid assets cover its short-term commitments?
Looking at PAVM’s most recent US$2.54M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of US$1.62M, with a current ratio of 0.64x below the prudent level of 3x.
Does PAVM face the risk of succumbing to its debt-load?
PAVM is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since PAVM is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
PAVM’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. 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 PAVM has been performing in the past. I suggest you continue to research PAVmed to get a more holistic view of the stock by looking at:
Historical Performance: What has PAVM’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.
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.
