Investors are always looking for growth in small-cap stocks like Landmark Infrastructure Partners LP (NASDAQ:LMRK), with a market cap of US$350.08m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into LMRK here.
Does LMRK produce enough cash relative to debt?
LMRK has built up its total debt levels in the last twelve months, from US$337.31m to US$0 , which comprises of short- and long-term debt. With this rise in debt, LMRK’s cash and short-term investments stands at US$9.19m , ready to deploy into the business. Additionally, LMRK has generated cash from operations of US$28.47m during the same period of time, leading to an operating cash to total debt ratio of 5.80%, meaning that LMRK’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In LMRK’s case, it is able to generate 0.058x cash from its debt capital.
Can LMRK meet its short-term obligations with the cash in hand?
With current liabilities at US$7.08m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 5.21x. Though, anything above 3x is considered high and could mean that LMRK has too much idle capital in low-earning investments.
Can LMRK service its debt comfortably?
LMRK is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether LMRK is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In LMRK’s, case, the ratio of 2.36x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
At its current level of cash flow coverage, LMRK has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure LMRK has company-specific issues impacting its capital structure decisions. I recommend you continue to research Landmark Infrastructure Partners to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LMRK’s future growth? Take a look at our free research report of analyst consensus for LMRK’s outlook.
- Valuation: What is LMRK 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 LMRK 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.