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Investors are always looking for growth in small-cap stocks like Steel Partners Holdings LP. (NYSE:SPLP), with a market cap of US$451.33M. However, an important fact which most ignore is: how financially healthy is the business? Since SPLP is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into SPLP here.
How does SPLP’s operating cash flow stack up against its debt?
SPLP’s debt levels surged from US$394.44M to US$591.18M 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$477.07M , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 assess some of SPLP’s operating efficiency ratios such as ROA here.
Can SPLP pay its short-term liabilities?
Looking at SPLP’s most recent US$514.87M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$1.03B, with a current ratio of 2x. Usually, for Industrials companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does SPLP face the risk of succumbing to its debt-load?
SPLP is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since SPLP is presently 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, SPLP has room for improvement to better cushion for events which may require debt repayment. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for SPLP’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Steel Partners Holdings to get a better picture of the stock by looking at:
Valuation: What is SPLP 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 SPLP is currently mispriced by the market.
Historical Performance: What has SPLP’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.