What Investors Should Know About Stage Stores Inc’s (SSI) Financial Strength
Stage Stores Inc (NYSE:SSI) is a small-cap stock with a market capitalization of USD $51.60M. 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? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. These factors make a basic understanding of a company’s financial position of utmost importance for a potential investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. See our latest analysis for SSI
Does SSI generate an acceptable amount of cash through operations?
There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. These adverse events bring devastation and yet does not absolve the company from its debt. Fortunately, we can test the company’s capacity to pay back its debtholders without summoning any catastrophes by looking at how much cash it generates from its current operations. Last year, SSI’s operating cash flow was 0.28x its current debt. This is a good sign, as over a quarter of SSI’s near term debt can be covered by its day-to-day cash income, which reduces its riskiness to its debtholders.
Can SSI pay its short-term liabilities?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. In times of adverse events, SSI may need to liquidate its short-term assets to pay these immediate obligations. We test for SSI’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that SSI does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Can SSI service its debt comfortably?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. SSI’s debt-to-equity ratio stands at 64.30%, which indicates that its debt can cause trouble for the company in a downturn but it is still at a manageable level.
Next Steps:
Are you a shareholder? Although SSI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. 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, its financial position may be different. You should always be keeping abreast of market expectations for SSI’s future growth on our free analysis platform.
Are you a potential investor? Investors shouldn’t be put off by SSI’s high debt levels based on this simple analysis. High level of cash generated from operating activities indicates its debt funding is being effectively used. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. To gain more confidence in the stock, you need to also analyse SSI’s track record. You should continue your analysis by taking a look at SSI’s past performance analysis on our free platform to figure out SSI’s financial health position.
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.
