Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Guardant Health, Inc. (NASDAQ:GH) with a market-capitalization of US$5.5b, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine GH’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into GH here.
GH’s Debt (And Cash Flows)
GH's debt levels have fallen from US$659k to US$216k over the last 12 months , which is mainly comprised of near term debt. With this reduction in debt, GH's cash and short-term investments stands at US$419m to keep the business going. 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 GH’s operating efficiency ratios such as ROA here.
Does GH’s liquid assets cover its short-term commitments?
Looking at GH’s US$47m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$469m, with a current ratio of 9.99x. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors.
Is GH’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For Guardant Health, investors should not worry about its debt levels because the company has very, very little on its balance sheet! This means it has been running its business utilising funding from primarily its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with GH, and the company has plenty of headroom and ability to raise debt should it need to in the future.
GH’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. 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 GH has been performing in the past. I recommend you continue to research Guardant Health to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for GH’s future growth? Take a look at our free research report of analyst consensus for GH’s outlook.
- Historical Performance: What has GH'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 firstname.lastname@example.org. 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.