Is Spark Networks SE (NYSEMKT:LOV) A Financially Sound Company?
While small-cap stocks, such as Spark Networks SE (NYSEMKT:LOV) with its market cap of US$165.6m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Internet companies, especially ones that are currently loss-making, tend to be high risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into LOV here.
How does LOV’s operating cash flow stack up against its debt?
LOV’s debt levels have fallen from €32.1m to €5.9m over the last 12 months . With this reduction in debt, LOV currently has €11.4m 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of LOV’s operating efficiency ratios such as ROA here.
Does LOV’s liquid assets cover its short-term commitments?
With current liabilities at €48.9m, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.45x, which is below the prudent industry ratio of 3x.
Is LOV’s debt level acceptable?
With a debt-to-equity ratio of 30.0%, LOV’s debt level may be seen as prudent. This range is considered safe as LOV is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. LOV’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
LOV’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how LOV has been performing in the past. I suggest you continue to research Spark Networks to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for LOV’s future growth? Take a look at our free research report of analyst consensus for LOV’s outlook.
Valuation: What is LOV 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 LOV 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 editorial-team@simplywallst.com.
