Investors are always looking for growth in small-cap stocks like Vertex Energy Inc (NASDAQ:VTNR), with a market cap of US$54.6m. However, an important fact which most ignore is: how financially healthy is the business? Oil and Gas companies, especially ones that are currently loss-making, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I recommend you dig deeper yourself into VTNR here.
How does VTNR’s operating cash flow stack up against its debt?
Over the past year, VTNR has ramped up its debt from US$16.9m to US$19.7m , which comprises of short- and long-term debt. With this growth in debt, VTNR’s cash and short-term investments stands at US$1.7m , ready to deploy into the business. Moreover, VTNR has produced US$1.0m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 5.1%, signalling that VTNR’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In VTNR’s case, it is able to generate 0.051x cash from its debt capital.
Can VTNR meet its short-term obligations with the cash in hand?
With current liabilities at US$17.7m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.38x. Generally, for Oil and Gas companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does VTNR face the risk of succumbing to its debt-load?
With debt at 36.3% of equity, VTNR may be thought of as appropriately levered. VTNR is not taking on too much debt commitment, which may be constraining for future growth. VTNR’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.
VTNR’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for VTNR’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Vertex Energy to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VTNR’s future growth? Take a look at our free research report of analyst consensus for VTNR’s outlook.
- Valuation: What is VTNR 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 VTNR is currently mispriced by the market.
- 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 firstname.lastname@example.org.