Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as BlackLine, Inc. (NASDAQ:BL), with a market capitalization of US$2.8b, rarely draw their attention from the investing community. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at BL’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into BL here.
Is BL’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For BlackLine, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with BL, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does BL’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, BlackLine has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at US$159m, it seems that the business has been able to meet these commitments with a current assets level of US$222m, leading to a 1.39x current account ratio. Generally, for Software companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
BL has no debt as well as ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and its investors, however, some level of debt may also boost earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how BL has performed in the past. You should continue to research BlackLine to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BL’s future growth? Take a look at our free research report of analyst consensus for BL’s outlook.
- Valuation: What is BL 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 BL 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.