Investors are always looking for growth in small-cap stocks like Beazer Homes USA Inc (NYSE:BZH), with a market cap of US$511.35M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Consumer Durables industry facing headwinds from current disruption, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into BZH here.
How does BZH’s operating cash flow stack up against its debt?
Over the past year, BZH has maintained its debt levels at around US$1.33B made up of current and long term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$292.15M , ready to deploy into the business. Moreover, BZH has produced US$95.91M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 7.23%, indicating that BZH’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In BZH’s case, it is able to generate 0.072x cash from its debt capital.
Can BZH meet its short-term obligations with the cash in hand?
At the current liabilities level of US$170.16M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$1.88B, leading to a 11.07x current account ratio. Though, anything above 3x is considered high and could mean that BZH has too much idle capital in low-earning investments.
Can BZH service its debt comfortably?
BZH is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since BZH is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
BZH’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how BZH has been performing in the past. I suggest you continue to research Beazer Homes USA to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for BZH’s future growth? Take a look at our free research report of analyst consensus for BZH’s outlook.
- 2. Valuation: What is BZH 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 BZH is currently mispriced by the market.
- 3. 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 pass 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.