Pingtan Marine Enterprise Ltd (NASDAQ:PME): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Pingtan Marine Enterprise Ltd (NASDAQ:PME), with a market cap of US$226.10M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into PME here.
Does PME generate an acceptable amount of cash through operations?
Over the past year, PME has ramped up its debt from US$57.22M to US$60.69M , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$820.40K , 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of PME’s operating efficiency ratios such as ROA here.
Can PME pay its short-term liabilities?
Looking at PME’s most recent US$64.92M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of US$60.84M, leading to a 0.94x current account ratio. which is under the appropriate industry ratio of 3x.
Does PME face the risk of succumbing to its debt-load?
With debt at 34.64% of equity, PME may be thought of as appropriately levered. PME is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
PME’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for PME’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Pingtan Marine Enterprise to get a better picture of the stock by looking at:
1. Valuation: What is PME 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 PME is currently mispriced by the market.
2. Historical Performance: What has PME’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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 pass 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.
