Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Momo Inc (NASDAQ:MOMO) with a market-capitalization of US$6.5b, rarely draw their attention. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. MOMO’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into MOMO here.
How does MOMO’s operating cash flow stack up against its debt?
MOMO has increased its debt level by about US$300m over the last 12 months made up of current and long term debt. With this ramp up in debt, MOMO’s cash and short-term investments stands at US$723m , ready to deploy into the business. On top of this, MOMO has produced cash from operations of US$510m over the same time period, resulting in an operating cash to total debt ratio of 170%, signalling that MOMO’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MOMO’s case, it is able to generate 1.7x cash from its debt capital.
Can MOMO pay its short-term liabilities?
Looking at MOMO’s most recent US$342m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$1.2b, with a current ratio of 3.46x. Having said that, many consider anything above 3x to be quite high and could mean that MOMO has too much idle capital in low-earning investments.
Can MOMO service its debt comfortably?
With a debt-to-equity ratio of 21%, MOMO’s debt level may be seen as prudent. MOMO is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
MOMO has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for MOMO’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Momo to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MOMO’s future growth? Take a look at our free research report of analyst consensus for MOMO’s outlook.
- Valuation: What is MOMO 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 MOMO 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 email@example.com.