Is Replimune Group (NASDAQ:REPL) Using Too Much Debt?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Replimune Group, Inc. (NASDAQ:REPL) makes use of debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Replimune Group
What Is Replimune Group's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of March 2022 Replimune Group had US$32.8m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$395.7m in cash, so it actually has US$362.8m net cash.
How Strong Is Replimune Group's Balance Sheet?
According to the last reported balance sheet, Replimune Group had liabilities of US$20.8m due within 12 months, and liabilities of US$29.2m due beyond 12 months. On the other hand, it had cash of US$395.7m and US$5.06m worth of receivables due within a year. So it actually has US$350.7m more liquid assets than total liabilities.
This surplus liquidity suggests that Replimune Group's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Replimune Group boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Replimune Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Given its lack of meaningful operating revenue, Replimune Group shareholders no doubt hope it can fund itself until it has a profitable product.
So How Risky Is Replimune Group?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that Replimune Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$85m of cash and made a loss of US$133m. But at least it has US$362.8m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Replimune Group is showing 4 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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