Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Texas Pacific Land Trust (NYSE:TPL), with a market capitalization of US$4.5b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at TPL’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into TPL here.
Is TPL’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For Texas Pacific Land Trust, 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 TPL, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can TPL meet its short-term obligations with the cash in hand?
Since Texas Pacific Land Trust 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. Looking at TPL’s US$12m in current liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$150m, leading to a 12.58x current account ratio. Having said that, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
TPL has no debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, but some level of debt may also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure TPL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Texas Pacific Land Trust to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TPL’s future growth? Take a look at our free research report of analyst consensus for TPL’s outlook.
- Valuation: What is TPL 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 TPL 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 firstname.lastname@example.org.