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Stocks with market capitalization between $2B and $10B, such as PulteGroup, Inc. (NYSE:PHM) with a size of US$7.6b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at PHM’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into PHM here.
PHM’s Debt (And Cash Flows)
PHM’s debt level has been constant at around US$3.4b over the previous year – this includes long-term debt. At this stable level of debt, PHM’s cash and short-term investments stands at US$1.1b to keep the business going. Moreover, PHM has generated US$1.4b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 42%, meaning that PHM’s operating cash is sufficient to cover its debt.
Can PHM pay its short-term liabilities?
At the current liabilities level of US$1.8b, the company has been able to meet these commitments with a current assets level of US$9.6b, leading to a 5.47x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Is PHM’s debt level acceptable?
With a debt-to-equity ratio of 71%, PHM can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Although PHM’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure PHM has company-specific issues impacting its capital structure decisions. You should continue to research PulteGroup to get a more holistic view of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PHM’s future growth? Take a look at our free research report of analyst consensus for PHM’s outlook.
- Valuation: What is PHM 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 PHM 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.