Karyopharm Therapeutics Inc. (NASDAQ:KPTI) is a small-cap stock with a market capitalization of US$505m. 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? Since KPTI is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, these checks don't give you a full picture, so I recommend you dig deeper yourself into KPTI here.
KPTI’s Debt (And Cash Flows)
Over the past year, KPTI has borrowed debt capital of around US$120m including long-term debt. With this ramp up in debt, KPTI currently has US$264m remaining in cash and short-term investments , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of KPTI’s operating efficiency ratios such as ROA here.
Can KPTI pay its short-term liabilities?
Looking at KPTI’s US$44m in current liabilities, the company has been able to meet these commitments with a current assets level of US$271m, leading to a 6.19x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
Can KPTI service its debt comfortably?
With debt reaching 86% of equity, KPTI may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since KPTI is presently loss-making, 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 KPTI’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. This is only a rough assessment of financial health, and I'm sure KPTI has company-specific issues impacting its capital structure decisions. You should continue to research Karyopharm Therapeutics to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KPTI’s future growth? Take a look at our free research report of analyst consensus for KPTI’s outlook.
- Valuation: What is KPTI 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 KPTI 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.
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