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Investors are always looking for growth in small-cap stocks like TTEC Holdings, Inc. (NASDAQ:TTEC), with a market cap of US$1.6b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the IT industry, especially ones that are currently loss-making, tend to be high risk. Assessing first and foremost the financial health is crucial. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into TTEC here.
How does TTEC’s operating cash flow stack up against its debt?
TTEC’s debt levels surged from US$255m to US$273m over the last 12 months , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$94m , ready to deploy into the business. Additionally, TTEC has generated US$130m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 48%, signalling that TTEC’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In TTEC’s case, it is able to generate 0.48x cash from its debt capital.
Can TTEC meet its short-term obligations with the cash in hand?
At the current liabilities level of US$243m, the company has been able to meet these commitments with a current assets level of US$503m, leading to a 2.07x current account ratio. Usually, for IT companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does TTEC face the risk of succumbing to its debt-load?
TTEC is a relatively highly levered company with a debt-to-equity of 83%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since TTEC 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.
Although TTEC’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. Since there is also no concerns around TTEC’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how TTEC has been performing in the past. I recommend you continue to research TTEC Holdings to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TTEC’s future growth? Take a look at our free research report of analyst consensus for TTEC’s outlook.
- Valuation: What is TTEC 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 TTEC 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 firstname.lastname@example.org. 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. On rare occasion, data errors may occur. Thank you for reading.