Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Spectrum Pharmaceuticals Inc (NASDAQ:SPPI) with a market-capitalization of US$2.22b, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine SPPI’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into SPPI here.
How does SPPI’s operating cash flow stack up against its debt?
SPPI’s debt levels have fallen from US$100.2m to US$39.4m over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, SPPI’s cash and short-term investments stands at US$269.7m for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 examine some of SPPI’s operating efficiency ratios such as ROA here.
Does SPPI’s liquid assets cover its short-term commitments?
With current liabilities at US$94.5m, the company has been able to meet these commitments with a current assets level of US$309.5m, leading to a 3.28x current account ratio. However, anything about 3x may be excessive, since SPPI may be leaving too much capital in low-earning investments.
Is SPPI’s debt level acceptable?
With debt at 11.5% of equity, SPPI may be thought of as appropriately levered. This range is considered safe as SPPI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. SPPI’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.
Although SPPI’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. 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 SPPI has been performing in the past. I suggest you continue to research Spectrum Pharmaceuticals to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SPPI’s future growth? Take a look at our free research report of analyst consensus for SPPI’s outlook.
- Valuation: What is SPPI 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 SPPI 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 email@example.com.