Is Sonoma Pharmaceuticals Inc (NASDAQ:SNOA) A Financially Sound Company?
Sonoma Pharmaceuticals Inc (NASDAQ:SNOA) is a small-cap stock with a market capitalization of US$18.21M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Pharmaceuticals companies, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into SNOA here.
Does SNOA generate enough cash through operations?
SNOA’s debt levels surged from US$114.00K to US$410.00K over the last 12 months – this includes both the current and long-term debt. With this growth in debt, SNOA currently has US$17.46M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of SNOA’s operating efficiency ratios such as ROA here.
Can SNOA meet its short-term obligations with the cash in hand?
With current liabilities at US$3.29M, the company has been able to meet these commitments with a current assets level of US$22.64M, leading to a 6.89x current account ratio. However, anything above 3x is considered high and could mean that SNOA has too much idle capital in low-earning investments.
Is SNOA’s debt level acceptable?
With a debt-to-equity ratio of 2.61%, SNOA’s debt level is relatively low. SNOA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for SNOA, and the company also has the ability and headroom to increase debt if needed going forward.
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 an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how SNOA has been performing in the past. I suggest you continue to research Sonoma Pharmaceuticals to get a more holistic view 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.
