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Investors are always looking for growth in small-cap stocks like Sientra, Inc. (NASDAQ:SIEN), with a market cap of US$305m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Medical Equipment industry, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into SIEN here.
How much cash does SIEN generate through its operations?
SIEN has built up its total debt levels in the last twelve months, from US$25m to US$35m – this includes long-term debt. With this growth in debt, SIEN currently has US$103m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of SIEN’s operating efficiency ratios such as ROA here.
Does SIEN’s liquid assets cover its short-term commitments?
Looking at SIEN’s US$54m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.77x. Usually, for Medical Equipment companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can SIEN service its debt comfortably?
With debt at 39% of equity, SIEN may be thought of as appropriately levered. SIEN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. SIEN’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
SIEN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for SIEN’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Sientra to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SIEN’s future growth? Take a look at our free research report of analyst consensus for SIEN’s outlook.
- Historical Performance: What has SIEN’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 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 email@example.com.