What You Must Know About Orion Energy Systems Inc’s (NASDAQ:OESX) Financial Strength
Investors are always looking for growth in small-cap stocks like Orion Energy Systems Inc (NASDAQ:OESX), with a market cap of US$29.4m. However, an important fact which most ignore is: how financially healthy is the business? Given that OESX is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into OESX here.
How much cash does OESX generate through its operations?
Over the past year, OESX has reduced its debt from US$4.1m to US$2.5m , which is made up of current and long term debt. With this debt repayment, OESX currently has US$7.8m remaining in cash and short-term investments for investing into the business. On top of this, OESX has produced cash from operations of US$1.4m in the last twelve months, resulting in an operating cash to total debt ratio of 56.8%, meaning that OESX’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In OESX’s case, it is able to generate 0.57x cash from its debt capital.
Can OESX pay its short-term liabilities?
With current liabilities at US$15.3m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.64x. For Electrical companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can OESX service its debt comfortably?
With debt at 11.6% of equity, OESX may be thought of as appropriately levered. OESX is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for OESX, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
OESX’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, 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 OESX’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Orion Energy Systems to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for OESX’s future growth? Take a look at our free research report of analyst consensus for OESX’s outlook.
Valuation: What is OESX 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 OESX 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 editorial-team@simplywallst.com.
