Nordex SE (ETR:NDX1) is a small-cap stock with a market capitalization of €857.32m. 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 NDX1 is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into NDX1 here.
Does NDX1 produce enough cash relative to debt?
NDX1’s debt levels surged from €658.73m to €825.66m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at €692.24m for investing into the business. Moreover, NDX1 has generated €169.36m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 20.51%, signalling that NDX1’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In NDX1’s case, it is able to generate 0.21x cash from its debt capital.
Can NDX1 meet its short-term obligations with the cash in hand?
Looking at NDX1’s most recent €1.41b 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 1.36x. Usually, for Electrical companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does NDX1 face the risk of succumbing to its debt-load?
NDX1 is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since NDX1 is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
NDX1’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure NDX1 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Nordex to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NDX1’s future growth? Take a look at our free research report of analyst consensus for NDX1’s outlook.
- Valuation: What is NDX1 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 NDX1 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.