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Is TG Therapeutics, Inc.'s (NASDAQ:TGTX) Balance Sheet Strong Enough To Weather A Storm?

Simply Wall St

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While small-cap stocks, such as TG Therapeutics, Inc. (NASDAQ:TGTX) with its market cap of US$595m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since TGTX 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 not a comprehensive overview, so I suggest you dig deeper yourself into TGTX here.

Does TGTX Produce Much Cash Relative To Its Debt?

TGTX's debt levels surged from US$224k to US$38m over the last 12 months , which accounts for long term debt. With this increase in debt, TGTX currently has US$92m remaining in cash and short-term investments , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of TGTX’s operating efficiency ratios such as ROA here.

Can TGTX pay its short-term liabilities?

At the current liabilities level of US$61m, it appears that the company has been able to meet these commitments with a current assets level of US$105m, leading to a 1.72x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Biotechs companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.

NasdaqCM:TGTX Historical Debt, June 27th 2019

Does TGTX face the risk of succumbing to its debt-load?

Since total debt levels exceed equity, TGTX is a highly leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since TGTX is currently loss-making, sustainability of its current state of operations becomes a concern. 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:

Although TGTX’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. This is only a rough assessment of financial health, and I'm sure TGTX has company-specific issues impacting its capital structure decisions. I recommend you continue to research TG Therapeutics to get a better picture of the small-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TGTX’s future growth? Take a look at our free research report of analyst consensus for TGTX’s outlook.
  2. Valuation: What is TGTX 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 TGTX is currently mispriced by the market.
  3. 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.