Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Silver

    25.10
    +0.18 (+0.74%)
     
  • EUR/USD

    1.0774
    -0.0020 (-0.18%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2625
    +0.0003 (+0.03%)
     
  • USD/JPY

    151.3460
    -0.0260 (-0.02%)
     
  • Bitcoin USD

    69,866.39
    -487.73 (-0.69%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,369.44
    +201.37 (+0.50%)
     

What You Must Know About Primo Water Corporation’s (NASDAQ:PRMW) Financial Strength

Investors are always looking for growth in small-cap stocks like Primo Water Corporation (NASDAQ:PRMW), with a market cap of US$744.5m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into PRMW here.

Does PRMW produce enough cash relative to debt?

PRMW’s debt levels have fallen from US$274.6m to US$198.7m over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$6.2m for investing into the business. Moreover, PRMW has generated cash from operations of US$22.8m during the same period of time, resulting in an operating cash to total debt ratio of 11.4%, meaning that PRMW’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PRMW’s case, it is able to generate 0.11x cash from its debt capital.

Can PRMW meet its short-term obligations with the cash in hand?

At the current liabilities level of US$43.9m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.06x. Generally, for Beverage companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

NasdaqGM:PRMW Historical Debt September 14th 18
NasdaqGM:PRMW Historical Debt September 14th 18

Is PRMW’s debt level acceptable?

Since total debt levels have outpaced equities, PRMW is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In PRMW’s case, the ratio of 1.38x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.

Next Steps:

PRMW’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how PRMW has been performing in the past. You should continue to research Primo Water to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for PRMW’s future growth? Take a look at our free research report of analyst consensus for PRMW’s outlook.

  2. Valuation: What is PRMW 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 PRMW 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 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.

Advertisement