Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Nu Skin Enterprises Inc (NYSE:NUS), with a market cap of US$4.69b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at NUS’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into NUS here.
Does NUS produce enough cash relative to debt?
NUS has built up its total debt levels in the last twelve months, from US$424.6m to US$468.0m , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$410.2m for investing into the business. Moreover, NUS has produced cash from operations of US$270.5m in the last twelve months, resulting in an operating cash to total debt ratio of 57.8%, signalling that NUS’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In NUS’s case, it is able to generate 0.58x cash from its debt capital.
Can NUS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$447.1m liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$815.0m, leading to a 1.82x current account ratio. Generally, for Personal Products companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can NUS service its debt comfortably?
With a debt-to-equity ratio of 58.2%, NUS can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. 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 11.88x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as NUS’s high interest coverage is seen as responsible and safe practice.
Although NUS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how NUS has been performing in the past. I suggest you continue to research Nu Skin Enterprises to get a better picture 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.
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.