While small-cap stocks, such as Oil States International Inc (NYSE:OIS) with its market cap of US$2.0b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Energy Services companies, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into OIS here.
How much cash does OIS generate through its operations?
Over the past year, OIS has ramped up its debt from US$51m to US$350m , which is made up of current and long term debt. With this rise in debt, OIS’s cash and short-term investments stands at US$29m , ready to deploy into the business. Additionally, OIS has generated US$97m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 28%, indicating that OIS’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In OIS’s case, it is able to generate 0.28x cash from its debt capital.
Can OIS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$143m 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 3.83x. Having said that, many consider anything above 3x to be quite high and could mean that OIS has too much idle capital in low-earning investments.
Does OIS face the risk of succumbing to its debt-load?
OIS’s level of debt is appropriate relative to its total equity, at 24%. OIS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with OIS, and the company has plenty of headroom and ability to raise debt should it need to in the future.
OIS’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, 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 OIS has company-specific issues impacting its capital structure decisions. I suggest you continue to research Oil States International to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OIS’s future growth? Take a look at our free research report of analyst consensus for OIS’s outlook.
- Valuation: What is OIS 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 OIS 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.