Investors are always looking for growth in small-cap stocks like SAExploration Holdings Inc (NASDAQ:SAEX), with a market cap of USD $17.06M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the energy equipment and services industry, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I recommend dig deeper yourself into SAEX here.
How does SAEX’s operating cash flow stack up against its debt?
SAEX’s debt levels have fallen from $144M to $118M over the last 12 months – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at $11M , ready to deploy into the business. Though its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of SAEX’s operating efficiency ratios such as ROA here.
Can SAEX meet its short-term obligations with the cash in hand?
With current liabilities at $52M liabilities, the company has been able to meet these obligations given the level of current assets of $92M, with a current ratio of 1.79x. Generally, for energy equipment and services companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does SAEX face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, SAEX is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since SAEX is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Are you a shareholder? SAEX’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. Given that its financial position may change. You should always be keeping abreast of market expectations for SAEX’s future growth on our free analysis platform.
Are you a potential investor? SAEX’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. You should continue your analysis by taking a look at SAEX’s past performance analysis on our free platform to figure out SAEX’s financial health position.
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.