Stocks with market capitalization between $2B and $10B, such as SailPoint Technologies Holdings Inc (NYSE:SAIL) with a size of US$2.90b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at SAIL’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 SAIL here.
Does SAIL produce enough cash relative to debt?
Over the past year, SAIL has reduced its debt from US$156.1m to US$9.6m , which comprises of short- and long-term debt. With this debt repayment, SAIL’s cash and short-term investments stands at US$81.8m for investing into the business. Moreover, SAIL has generated US$42.4m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 440%, signalling that SAIL’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In SAIL’s case, it is able to generate 4.4x cash from its debt capital.
Can SAIL meet its short-term obligations with the cash in hand?
Looking at SAIL’s most recent US$99.7m liabilities, the company has been able to meet these obligations given the level of current assets of US$146.9m, with a current ratio of 1.47x. Usually, for Software companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can SAIL service its debt comfortably?
SAIL’s level of debt is low relative to its total equity, at 2.9%. This range is considered safe as SAIL is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is extremely low for SAIL, and the company also has the ability and headroom to increase debt if needed going forward.
SAIL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for SAIL’s financial health. Other important fundamentals need to be considered alongside. You should continue to research SailPoint Technologies Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SAIL’s future growth? Take a look at our free research report of analyst consensus for SAIL’s outlook.
- Valuation: What is SAIL 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 SAIL 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.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.