Quintana Energy Services Inc. (NYSE:QES) is a small-cap stock with a market capitalization of US$131m. 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? Companies operating in the Energy Services industry, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into QES here.
How does QES’s operating cash flow stack up against its debt?
QES’s debt levels have fallen from US$119m to US$34m over the last 12 months , which also accounts for long term debt. With this debt repayment, QES’s cash and short-term investments stands at US$22m for investing into the business. Additionally, QES has generated cash from operations of US$44m during the same period of time, resulting in an operating cash to total debt ratio of 129%, meaning that QES’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In QES’s case, it is able to generate 1.29x cash from its debt capital.
Can QES pay its short-term liabilities?
With current liabilities at US$76m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.95x. For Energy Services companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does QES face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 17%, QES’s debt level may be seen as prudent. This range is considered safe as QES is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with QES, and the company has plenty of headroom and ability to raise debt should it need to in the future.
QES has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure QES has company-specific issues impacting its capital structure decisions. You should continue to research Quintana Energy Services to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for QES’s future growth? Take a look at our free research report of analyst consensus for QES’s outlook.
- Historical Performance: What has QES’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 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.
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