We Think Adesto Technologies (NASDAQ:IOTS) Has A Fair Chunk Of Debt
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Adesto Technologies Corporation (NASDAQ:IOTS) makes use of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Adesto Technologies
What Is Adesto Technologies's Net Debt?
As you can see below, Adesto Technologies had US$29.5m of debt, at June 2019, which is about the same the year before. You can click the chart for greater detail. On the flip side, it has US$7.19m in cash leading to net debt of about US$22.3m.
A Look At Adesto Technologies's Liabilities
We can see from the most recent balance sheet that Adesto Technologies had liabilities of US$42.9m falling due within a year, and liabilities of US$36.9m due beyond that. Offsetting these obligations, it had cash of US$7.19m as well as receivables valued at US$24.0m due within 12 months. So its liabilities total US$48.6m more than the combination of its cash and short-term receivables.
Of course, Adesto Technologies has a market capitalization of US$306.7m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Adesto Technologies's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Adesto Technologies reported revenue of US$108m, which is a gain of 67%. With any luck the company will be able to grow its way to profitability.
Caveat Emptor
Even though Adesto Technologies managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost US$15m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$14m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Adesto Technologies insider transactions.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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