Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as PagSeguro Digital Ltd (NYSE:PAGS), with a market cap of US$7.9b, often get neglected by retail investors. 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. This article will examine PAGS’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into PAGS here.
Is PAGS’s debt level acceptable?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For PagSeguro Digital, investors should not worry about its debt levels because the company has none! 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 PAGS, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does PAGS’s liquid assets cover its short-term commitments?
Since PagSeguro Digital 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. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at R$3.4b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.66x. For IT 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.
PAGS has no debt in addition to ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and shareholders, however, some level of debt could also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for PAGS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research PagSeguro Digital to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PAGS’s future growth? Take a look at our free research report of analyst consensus for PAGS’s outlook.
- Valuation: What is PAGS 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 PAGS 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.