Is Team Inc’s (NYSE:TISI) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like Team Inc (NYSE:TISI), with a market cap of US$512m. However, an important fact which most ignore is: how financially healthy is the business? Given that TISI is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into TISI here.
Does TISI produce enough cash relative to debt?
TISI has sustained its debt level by about US$377m over the last 12 months including long-term debt. At this constant level of debt, TISI’s cash and short-term investments stands at US$16m , ready to deploy into the business. On top of this, TISI has generated cash from operations of US$1.7m in the last twelve months, leading to an operating cash to total debt ratio of 0.5%, indicating that TISI’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In TISI’s case, it is able to generate 0.0046x cash from its debt capital.
Does TISI’s liquid assets cover its short-term commitments?
At the current liabilities level of US$151m, the company has been able to meet these commitments with a current assets level of US$395m, leading to a 2.61x current account ratio. Usually, for Commercial Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is TISI’s debt level acceptable?
With a debt-to-equity ratio of 86%, TISI can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since TISI 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:
Although TISI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how TISI has been performing in the past. I recommend you continue to research Team to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for TISI’s future growth? Take a look at our free research report of analyst consensus for TISI’s outlook.
Valuation: What is TISI 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 TISI 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.
