Stitch Fix, Inc. (NASDAQ:SFIX): Financial Strength Analysis
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Stitch Fix, Inc. (NASDAQ:SFIX), with a market cap of US$2.1b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. SFIX’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Stitch Fix’s financial health, so you should conduct further analysis into SFIX here.
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Does SFIX face the risk of succumbing to its debt-load?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Stitch Fix, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with SFIX, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does SFIX’s liquid assets cover its short-term commitments?
Since Stitch Fix doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at US$192m, the company has been able to meet these obligations given the level of current assets of US$398m, with a current ratio of 2.07x. For Online Retail companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Next Steps:
SFIX has no debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, however, some level of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how SFIX has performed in the past. I suggest you continue to research Stitch Fix to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SFIX’s future growth? Take a look at our free research report of analyst consensus for SFIX’s outlook.
Valuation: What is SFIX 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 SFIX 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.
