Investors are always looking for growth in small-cap stocks like Limbach Holdings Inc (NASDAQ:LMB), with a market cap of US$72.7m. However, an important fact which most ignore is: how financially healthy is the business? Given that LMB is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into LMB here.
How much cash does LMB generate through its operations?
LMB has built up its total debt levels in the last twelve months, from US$23.5m to US$34.5m , which is made up of current and long term debt. With this increase in debt, LMB’s cash and short-term investments stands at US$256.0k , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of LMB’s operating efficiency ratios such as ROA here.
Does LMB’s liquid assets cover its short-term commitments?
At the current liabilities level of US$155.7m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$175.0m, with a current ratio of 1.12x. For Construction companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does LMB face the risk of succumbing to its debt-load?
With debt reaching 76.0% of equity, LMB may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since LMB is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, LMB has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for LMB’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Limbach Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LMB’s future growth? Take a look at our free research report of analyst consensus for LMB’s outlook.
- Valuation: What is LMB 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 LMB 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.