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OptiNose, Inc. (NASDAQ:OPTN): Time For A Financial Health Check

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Jacob Boyd
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Investors are always looking for growth in small-cap stocks like OptiNose, Inc. (NASDAQ:OPTN), with a market cap of US$248m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Pharmaceuticals industry, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into OPTN here.

Does OPTN produce enough cash relative to debt?

OPTN has increased its debt level by about US$72m over the last 12 months – which includes long-term debt. With this increase in debt, OPTN currently has US$221m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of OPTN’s operating efficiency ratios such as ROA here.

Can OPTN meet its short-term obligations with the cash in hand?

Looking at OPTN’s US$22m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$233m, with a current ratio of 10.44x. However, a ratio greater than 3x may be considered high by some.

NasdaqGS:OPTN Historical Debt December 25th 18
NasdaqGS:OPTN Historical Debt December 25th 18

Does OPTN face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 51%, OPTN can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since OPTN is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

OPTN’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 OPTN’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure OPTN has company-specific issues impacting its capital structure decisions. I recommend you continue to research OptiNose to get a more holistic view of the small-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for OPTN’s future growth? Take a look at our free research report of analyst consensus for OPTN’s outlook.

  2. Valuation: What is OPTN 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 OPTN is currently mispriced by the market.

  3. 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 editorial-team@simplywallst.com.