Limbach Holdings, Inc. (NASDAQ:LMB): Time For A Financial Health Check
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Limbach Holdings, Inc. (NASDAQ:LMB) is a small-cap stock with a market capitalization of US$42m. 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 LMB is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into LMB here.
How much cash does LMB generate through its operations?
Over the past year, LMB has ramped up its debt from US$35m to US$39m – this includes long-term debt. With this rise in debt, LMB currently has US$526k remaining in cash and short-term investments , ready to deploy into the business. On top of this, LMB has generated cash from operations of US$3.5m in the last twelve months, leading to an operating cash to total debt ratio of 8.9%, indicating that LMB’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In LMB’s case, it is able to generate 0.089x cash from its debt capital.
Can LMB pay its short-term liabilities?
With current liabilities at US$212m, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$210m, with a current ratio of 0.99x.
Does LMB face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 92%, LMB can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since LMB is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
LMB’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure LMB has company-specific issues impacting its capital structure decisions. I suggest you continue to research Limbach Holdings to get a better picture 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.
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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.
