What You Must Know About MACOM Technology Solutions Holdings Inc’s (NASDAQ:MTSI) Financial Strength
Investors are always looking for growth in small-cap stocks like MACOM Technology Solutions Holdings Inc (NASDAQ:MTSI), with a market cap of US$1.23B. However, an important fact which most ignore is: how financially healthy is the business? Semiconductor companies, especially ones that are currently loss-making, tend to be high risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into MTSI here.
How does MTSI’s operating cash flow stack up against its debt?
MTSI’s debt levels surged from US$583.55M to US$686.45M over the last 12 months – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$214.23M for investing into the business. Additionally, MTSI has generated US$61.05M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 8.89%, indicating that MTSI’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In MTSI’s case, it is able to generate 0.089x cash from its debt capital.
Can MTSI pay its short-term liabilities?
At the current liabilities level of US$117.12M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$562.90M, with a current ratio of 4.81x. Though, anything above 3x is considered high and could mean that MTSI has too much idle capital in low-earning investments.
Is MTSI’s debt level acceptable?
MTSI is a relatively highly levered company with a debt-to-equity of 89.55%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since MTSI is currently unprofitable, 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.
Next Steps:
At its current level of cash flow coverage, MTSI has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for MTSI’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research MACOM Technology Solutions Holdings to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for MTSI’s future growth? Take a look at our free research report of analyst consensus for MTSI’s outlook.
2. Valuation: What is MTSI 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 MTSI 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.
