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Investors are always looking for growth in small-cap stocks like Ocular Therapeutix, Inc. (NASDAQ:OCUL), with a market cap of US$158m. However, an important fact which most ignore is: how financially healthy is the business? Pharmaceuticals companies, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into OCUL here.
Does OCUL produce enough cash relative to debt?
Over the past year, OCUL has reduced its debt from US$18m to US$14m – this includes long-term debt. With this debt payback, OCUL’s cash and short-term investments stands at US$57m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of OCUL’s operating efficiency ratios such as ROA here.
Can OCUL meet its short-term obligations with the cash in hand?
At the current liabilities level of US$13m, the company has been able to meet these obligations given the level of current assets of US$58m, with a current ratio of 4.35x. However, many consider a ratio above 3x to be high.
Is OCUL’s debt level acceptable?
OCUL’s level of debt is appropriate relative to its total equity, at 31%. This range is considered safe as OCUL is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for OCUL, and the company also has the ability and headroom to increase debt if needed going forward.
OCUL’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how OCUL has been performing in the past. I suggest you continue to research Ocular Therapeutix to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OCUL’s future growth? Take a look at our free research report of analyst consensus for OCUL’s outlook.
- Valuation: What is OCUL 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 OCUL 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.