What You Must Know About Piquadro Sp.A.’s (BIT:PQ) Financial Strength
Investors are always looking for growth in small-cap stocks like Piquadro Sp.A. (BIT:PQ), with a market cap of €94.50M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into PQ here.
Does PQ generate enough cash through operations?
Over the past year, PQ has ramped up its debt from €16.96M to €21.27M , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at €15.29M , ready to deploy into the business. Additionally, PQ has generated €2.12M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 9.96%, signalling that PQ’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In PQ’s case, it is able to generate 0.1x cash from its debt capital.
Can PQ meet its short-term obligations with the cash in hand?
Looking at PQ’s most recent €31.74M liabilities, it seems that the business has been able to meet these commitments with a current assets level of €66.45M, leading to a 2.09x current account ratio. Generally, for Luxury companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is PQ’s debt level acceptable?
With debt reaching 58.28% of equity, PQ may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether PQ is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In PQ’s, case, the ratio of 22.45x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
At its current level of cash flow coverage, PQ 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. This is only a rough assessment of financial health, and I’m sure PQ has company-specific issues impacting its capital structure decisions. You should continue to research Piquadro to get a more holistic view of the stock by looking at:
Valuation: What is PQ 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 PQ is currently mispriced by the market.
Historical Performance: What has PQ’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.
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.
