Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as PTC Therapeutics, Inc. (NASDAQ:PTCT), with a market cap of US$2.1b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine PTCT’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into PTCT here.
Does PTCT Produce Much Cash Relative To Its Debt?
PTCT’s debt levels surged from US$145m to US$153m over the last 12 months , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$228m , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn’t be useful. For this article’s sake, I won’t be looking at this today, but you can examine some of PTCT’s operating efficiency ratios such as ROA here.
Does PTCT’s liquid assets cover its short-term commitments?
With current liabilities at US$167m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.92x. The current ratio is the number you get when you divide current assets by current liabilities. For Biotechs companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Is PTCT’s debt level acceptable?
PTCT is a relatively highly levered company with a debt-to-equity of 44%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since PTCT 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.
Although PTCT’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around PTCT’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for PTCT’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Therapeutics to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PTCT’s future growth? Take a look at our free research report of analyst consensus for PTCT’s outlook.
- Valuation: What is PTCT 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 PTCT 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.
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