All You Need To Know About Penumbra, Inc.'s (NYSE:PEN) Financial Health
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Stocks with market capitalization between $2B and $10B, such as Penumbra, Inc. (NYSE:PEN) with a size of US$5.9b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. PEN’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Penumbra's financial health, so you should conduct further analysis into PEN here.
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Is PEN’s debt level acceptable?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For PEN, the debt-to-equity ratio is zero, meaning that the company has no debt. 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 PEN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can PEN meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Penumbra has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$69m, it seems that the business has been able to meet these commitments with a current assets level of US$423m, leading to a 6.1x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
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PEN 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, but some level of debt could also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I'm sure PEN has company-specific issues impacting its capital structure decisions. You should continue to research Penumbra to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for PEN’s future growth? Take a look at our free research report of analyst consensus for PEN’s outlook.
Valuation: What is PEN 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 PEN 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 editorial-team@simplywallst.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.
