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Is Power Integrations Inc (NASDAQ:POWI) As Strong As Its Balance Sheet Indicates?

Will Harmon

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Power Integrations Inc (NASDAQ:POWI), with a market cap of US$2.17B, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine POWI’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Amazon’s financial health, so you should conduct further analysis into POWI here. Check out our latest analysis for Power Integrations

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

What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Power Integrations, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with POWI, and the company has plenty of headroom and ability to raise debt should it need to in the future.

NasdaqGS:POWI Historical Debt May 26th 18

Can POWI pay its short-term liabilities?

Since Power Integrations doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at US$51.05M, it appears that the company has been able to meet these obligations given the level of current assets of US$364.53M, with a current ratio of 7.14x. Though, a ratio greater than 3x may be considered as too high, as POWI could be holding too much capital in a low-return investment environment.

Next Steps:

POWI has no debt in addition to ample cash to cover its near-term liabilities. Its safe operations reduces risk for the company and its investors, however, some degree of debt could also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure POWI has company-specific issues impacting its capital structure decisions. I suggest you continue to research Power Integrations to get a better picture of the stock by looking at:

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