Is STRATA Skin Sciences Inc’s (NASDAQ:SSKN) Balance Sheet A Threat To Its Future?
While small-cap stocks, such as STRATA Skin Sciences Inc (NASDAQ:SSKN) with its market cap of US$7.92M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Medical Equipment companies, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into SSKN here.
Does SSKN generate an acceptable amount of cash through operations?
SSKN’s debt levels have fallen from US$23.83M to US$10.60M over the last 12 months – this includes both the current and long-term debt. With this debt repayment, SSKN’s cash and short-term investments stands at US$4.07M for investing into the business. Additionally, SSKN has produced US$4.14M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 39.07%, indicating that SSKN’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In SSKN’s case, it is able to generate 0.39x cash from its debt capital.
Can SSKN pay its short-term liabilities?
With current liabilities at US$7.67M, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.4x. For Medical Equipment companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can SSKN service its debt comfortably?
With a debt-to-equity ratio of 53.17%, SSKN can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since SSKN is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
SSKN’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around SSKN’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for SSKN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research STRATA Skin Sciences to get a better picture of the small-cap by looking at:
Valuation: What is SSKN 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 SSKN is currently mispriced by the market.
Historical Performance: What has SSKN’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.
