Stocks with market capitalization between $2B and $10B, such as Itron Inc (NASDAQ:ITRI) with a size of US$2.30b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine ITRI’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Itron’s financial health, so you should conduct further analysis into ITRI here. View out our latest analysis for Itron
How much cash does ITRI generate through its operations?
ITRI’s debt levels surged from US$305.53m to US$614.18m over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$176.97m for investing into the business. On top of this, ITRI has generated US$191.35m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 31.16%, meaning that ITRI’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In ITRI’s case, it is able to generate 0.31x cash from its debt capital.
Can ITRI meet its short-term obligations with the cash in hand?
With current liabilities at US$507.78m, it appears that the company has been able to meet these obligations given the level of current assets of US$849.74m, with a current ratio of 1.67x. Usually, for Electronic companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can ITRI service its debt comfortably?
ITRI is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. But since ITRI is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although ITRI’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. Since there is also no concerns around ITRI’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how ITRI has been performing in the past. I recommend you continue to research Itron to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ITRI’s future growth? Take a look at our free research report of analyst consensus for ITRI’s outlook.
- Valuation: What is ITRI 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 ITRI is currently mispriced by the market.
- 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.