Is Sonoma Pharmaceuticals Inc’s (NASDAQ:SNOA) Balance Sheet Strong Enough To Weather A Storm?
While small-cap stocks, such as Sonoma Pharmaceuticals Inc (NASDAQ:SNOA) with its market cap of US$16.23m, 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 Pharmaceuticals industry, in particular ones that run negative earnings, tend to be high risk. Evaluating financial health as part of your investment thesis is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into SNOA here.
Does SNOA produce enough cash relative to debt?
SNOA’s debt levels surged from US$410.00k to US$553.00k over the last 12 months , which is made up of current and long term debt. With this increase in debt, SNOA currently has US$10.07m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of SNOA’s operating efficiency ratios such as ROA here.
Can SNOA pay its short-term liabilities?
With current liabilities at US$3.26m, the company has been able to meet these obligations given the level of current assets of US$16.25m, with a current ratio of 4.98x. However, anything above 3x is considered high and could mean that SNOA has too much idle capital in low-earning investments.
Does SNOA face the risk of succumbing to its debt-load?
SNOA’s level of debt is low relative to its total equity, at 3.61%. This range is considered safe as SNOA is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with SNOA, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
SNOA’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for SNOA’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sonoma Pharmaceuticals to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SNOA’s future growth? Take a look at our free research report of analyst consensus for SNOA’s outlook.
Historical Performance: What has SNOA’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
