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Investors looking for stocks with high market liquidity and zero debt on the balance sheet should consider ABIOMED, Inc. (NASDAQ:ABMD). With a market valuation of US$13b, ABMD is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for ABMD, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Is ABMD’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. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. For ABMD, the debt-to-equity ratio is zero, meaning that the company has no debt. 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 ABMD, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ABMD meet its short-term obligations with the cash in hand?
Since ABIOMED 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. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$93m, it appears that the company has been able to meet these commitments with a current assets level of US$629m, leading to a 6.76x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
ABMD has no debt as well as ample cash to cover its near-term commitments. Its strong balance sheet reduces risk for the company and its investors. This is only a rough assessment of financial health, and I'm sure ABMD has company-specific issues impacting its capital structure decisions. I recommend you continue to research ABIOMED to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ABMD’s future growth? Take a look at our free research report of analyst consensus for ABMD’s outlook.
- Valuation: What is ABMD 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 ABMD 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. Thank you for reading.