Mid-caps stocks, like Luk Fook Holdings (International) Limited (HKG:590) with a market capitalization of HK$16.82b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. 590’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 590 here.
Does 590 produce enough cash relative to debt?
Over the past year, 590 has ramped up its debt from HK$437.2m to HK$726.3m made up of predominantly near term debt. With this growth in debt, 590 currently has HK$2.10b remaining in cash and short-term investments for investing into the business. On top of this, 590 has produced cash from operations of HK$469.8m in the last twelve months, leading to an operating cash to total debt ratio of 64.7%, signalling that 590’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 590’s case, it is able to generate 0.65x cash from its debt capital.
Can 590 meet its short-term obligations with the cash in hand?
With current liabilities at HK$2.03b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 5.37x. Though, anything above 3x is considered high and could mean that 590 has too much idle capital in low-earning investments.
Does 590 face the risk of succumbing to its debt-load?
With debt at 7.2% of equity, 590 may be thought of as having low leverage. This range is considered safe as 590 is not taking on too much debt obligation, which may be constraining for future growth.
590’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how 590 has been performing in the past. You should continue to research Luk Fook Holdings (International) to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 590’s future growth? Take a look at our free research report of analyst consensus for 590’s outlook.
- Valuation: What is 590 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 590 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.
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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.