Are Team, Inc.'s (NYSE:TISI) Interest Costs Too High?
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Investors are always looking for growth in small-cap stocks like Team, Inc. (NYSE:TISI), with a market cap of US$455m. However, an important fact which most ignore is: how financially healthy is the business? Since TISI is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, this is just a partial view of the stock, and I recommend you dig deeper yourself into TISI here.
Does TISI Produce Much Cash Relative To Its Debt?
TISI's debt levels surged from US$383m to US$427m over the last 12 months , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$15m to keep the business going. Additionally, TISI has generated cash from operations of US$47m over the same time period, resulting in an operating cash to total debt ratio of 11%, signalling that TISI’s operating cash is less than its debt.
Does TISI’s liquid assets cover its short-term commitments?
Looking at TISI’s US$153m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.18x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Commercial Services companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can TISI service its debt comfortably?
With a debt-to-equity ratio of 81%, TISI can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since TISI is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
TISI’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 TISI's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure TISI has company-specific issues impacting its capital structure decisions. I suggest 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
