What You Must Know About Pacira Pharmaceuticals Inc’s (NASDAQ:PCRX) Financial Strength
Investors are always looking for growth in small-cap stocks like Pacira Pharmaceuticals Inc (NASDAQ:PCRX), with a market cap of US$1.46B. However, an important fact which most ignore is: how financially healthy is the business? Pharmaceuticals companies, in particular ones that run negative earnings, are inclined towards being higher risk. Assessing first and foremost the financial health is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into PCRX here.
Does PCRX generate an acceptable amount of cash through operations?
PCRX has sustained its debt level by about US$108.74M over the last 12 months made up of current and long term debt. At this current level of debt, PCRX currently has US$172.60M remaining in cash and short-term investments , ready to deploy into the business. Moreover, PCRX has produced US$33.45M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 30.76%, signalling that PCRX’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In PCRX’s case, it is able to generate 0.31x cash from its debt capital.
Does PCRX’s liquid assets cover its short-term commitments?
At the current liabilities level of US$44.84M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$243.09M, with a current ratio of 5.42x. Though, anything above 3x is considered high and could mean that PCRX has too much idle capital in low-earning investments.
Is PCRX’s debt level acceptable?
With total debt exceeding equities, PCRX is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since PCRX is currently unprofitable, 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.
Next Steps:
PCRX’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around PCRX’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for PCRX’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Pacira Pharmaceuticals to get a better picture of the small-cap by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for PCRX’s future growth? Take a look at our free research report of analyst consensus for PCRX’s outlook.
2. Valuation: What is PCRX 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 PCRX 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.
