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PagSeguro Digital Ltd. (NYSE:PAGS), a large-cap worth US$12b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for PAGS to determine is solvency and liquidity and whether the stock is a sound investment.
Can PAGS service its debt comfortably?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. For PagSeguro Digital, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. 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$4.8b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.39x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for IT companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
PAGS has zero debt in addition to ample cash to cover its near-term liabilities. Its strong balance sheet reduces risk for the company and shareholders. Keep in mind I haven't considered other factors such as how PAGS has performed in the past. I suggest you continue to research PagSeguro Digital to get a better picture 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.
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 email@example.com. 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.