Is Shenandoah Telecommunications Company (NASDAQ:SHEN) A Financially Sound Company?
While small-cap stocks, such as Shenandoah Telecommunications Company (NASDAQ:SHEN) with its market cap of $1.59B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Wireless Telcom industry facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into SHEN here.
How does SHEN’s operating cash flow stack up against its debt?
SHEN’s debt levels surged from $199.7M to $829.3M over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at $36.2M for investing into the business. Additionally, SHEN has generated cash from operations of $161.5M during the same period of time, resulting in an operating cash to total debt ratio of 19.48%, signalling that SHEN’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SHEN’s case, it is able to generate 0.19x cash from its debt capital.
Can SHEN pay its short-term liabilities?
With current liabilities at $164.3M, the company has not been able to meet these commitments with a current assets level of $161.5M, leading to a 0.98x current account ratio. which is under the appropriate industry ratio of 3x.
Is SHEN’s debt level acceptable?
SHEN is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In SHEN’s case, the ratio of 1.8x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
SHEN’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. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure SHEN has company-specific issues impacting its capital structure decisions. You should continue to research Shenandoah Telecommunications to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for SHEN’s future growth? Take a look at our free research report of analyst consensus for SHEN’s outlook.
2. Valuation: What is SHEN 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 SHEN is currently mispriced by the market.
3. 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 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.
