Investors are always looking for growth in small-cap stocks like Hornbeck Offshore Services, Inc. (NYSE:HOS), with a market cap of US$56m. However, an important fact which most ignore is: how financially healthy is the business? Since HOS is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. We’ll look at some basic checks that can form a snapshot the company’s financial strength. However, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into HOS here.
Does HOS Produce Much Cash Relative To Its Debt?
HOS has built up its total debt levels in the last twelve months, from US$1.1b to US$1.2b – this includes long-term debt. With this rise in debt, HOS’s cash and short-term investments stands at US$225m , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of HOS’s operating efficiency ratios such as ROA here.
Can HOS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$161m, it appears that the company has been able to meet these commitments with a current assets level of US$300m, leading to a 1.86x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Energy Services companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can HOS service its debt comfortably?
With a debt-to-equity ratio of 93%, HOS can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since HOS is currently loss-making, 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.
Although HOS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around HOS’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how HOS has been performing in the past. You should continue to research Hornbeck Offshore Services to get a better picture of the small-cap by looking at:
- Valuation: What is HOS 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 HOS is currently mispriced by the market.
- Historical Performance: What has HOS’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.