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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider ANTA Sports Products Limited (HKG:2020). With a market valuation of HK$112b, 2020 is a safe haven in times of market uncertainty due to its strong balance sheet. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for 2020, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Does 2020 produce enough cash relative to debt?
Over the past year, 2020 has ramped up its debt from CN¥600m to CN¥1.2b made up of predominantly near term debt. With this rise in debt, 2020’s cash and short-term investments stands at CN¥11b for investing into the business. On top of this, 2020 has generated CN¥2.6b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 210%, indicating that 2020’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 2020’s case, it is able to generate 2.1x cash from its debt capital.
Does 2020’s liquid assets cover its short-term commitments?
Looking at 2020’s CN¥5.3b in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.15x. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Is 2020’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. With a debt-to-equity ratio of 8.2%, 2020’s debt level is relatively low. 2020 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
2020 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for 2020’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research ANTA Sports Products to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 2020’s future growth? Take a look at our free research report of analyst consensus for 2020’s outlook.
- Valuation: What is 2020 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 2020 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.