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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Nu Skin Enterprises, Inc. (NYSE:NUS) with a market-capitalization of US$2.6b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine NUS’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into NUS here.
NUS’s Debt (And Cash Flows)
NUS has built up its total debt levels in the last twelve months, from US$470m to US$521m , which includes long-term debt. With this increase in debt, NUS currently has US$318m remaining in cash and short-term investments , ready to be used for running the business. Moreover, NUS has produced cash from operations of US$196m in the last twelve months, resulting in an operating cash to total debt ratio of 38%, meaning that NUS’s debt is appropriately covered by operating cash.
Can NUS pay its short-term liabilities?
At the current liabilities level of US$402m, it appears that the company has been able to meet these obligations given the level of current assets of US$748m, with a current ratio of 1.86x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Personal Products 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.
Does NUS face the risk of succumbing to its debt-load?
With debt reaching 49% of equity, NUS may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if NUS’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For NUS, the ratio of 15.06x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
NUS’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around NUS's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how NUS has been performing in the past. You should continue to research Nu Skin Enterprises to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NUS’s future growth? Take a look at our free research report of analyst consensus for NUS’s outlook.
- Valuation: What is NUS 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 NUS 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.