Tristate Holdings Limited (HKG:458) is a small-cap stock with a market capitalization of HK$472.6m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since 458 is loss-making right now, it’s vital 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. However, this commentary is still very high-level, so I suggest you dig deeper yourself into 458 here.
Does 458 produce enough cash relative to debt?
458 has built up its total debt levels in the last twelve months, from HK$128.4m to HK$180.1m made up of predominantly near term debt. With this rise in debt, 458 currently has HK$245.5m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of 458’s operating efficiency ratios such as ROA here.
Does 458’s liquid assets cover its short-term commitments?
At the current liabilities level of HK$623.4m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of HK$1.20b, with a current ratio of 1.93x. For Luxury companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can 458 service its debt comfortably?
With a debt-to-equity ratio of 15.1%, 458’s debt level may be seen as prudent. This range is considered safe as 458 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for 458, and the company also has the ability and headroom to increase debt if needed going forward.
458’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure 458 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Tristate Holdings to get a more holistic view of the stock by looking at:
- Valuation: What is 458 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 458 is currently mispriced by the market.
- Historical Performance: What has 458’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.
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