What You Must Know About StoneMor Partners LP.’s (NYSE:STON) Financial Strength
StoneMor Partners LP. (NYSE:STON) is a small-cap stock with a market capitalization of US$226.23M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that STON is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into STON here.
Does STON generate enough cash through operations?
STON’s debt levels have fallen from US$318.84M to US$302.13M over the last 12 months , which is made up of current and long term debt. With this debt repayment, STON currently has US$12.57M remaining in cash and short-term investments , ready to deploy into the business. On top of this, STON has produced cash from operations of US$22.77M over the same time period, resulting in an operating cash to total debt ratio of 7.54%, signalling that STON’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In STON’s case, it is able to generate 0.075x cash from its debt capital.
Can STON meet its short-term obligations with the cash in hand?
At the current liabilities level of US$38.89M 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 3.06x. However, a ratio greater than 3x may be considered as too high, as STON could be holding too much capital in a low-return investment environment.
Is STON’s debt level acceptable?
Since total debt levels have outpaced equities, STON is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since STON is currently loss-making, 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:
STON’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, 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 STON’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research StoneMor Partners to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for STON’s future growth? Take a look at our free research report of analyst consensus for STON’s outlook.
2. Historical Performance: What has STON’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.
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.
