Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Spectrum Pharmaceuticals Inc (NASDAQ:SPPI), with a market capitalization of US$2.06B, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at SPPI’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into SPPI here. Check out our latest analysis for Spectrum Pharmaceuticals
Does SPPI generate an acceptable amount of cash through operations?
Over the past year, SPPI has reduced its debt from US$97.04M to US$38.22M , which is made up of current and long term debt. With this reduction in debt, SPPI’s cash and short-term investments stands at US$227.57M for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of SPPI’s operating efficiency ratios such as ROA here.
Can SPPI meet its short-term obligations with the cash in hand?
Looking at SPPI’s most recent US$109.75M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.53x. For Biotechs companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does SPPI face the risk of succumbing to its debt-load?
With debt at 11.97% of equity, SPPI may be thought of as appropriately levered. SPPI is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for SPPI, and the company also has the ability and headroom to increase debt if needed going forward.
SPPI’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how SPPI has been performing in the past. I recommend you continue to research Spectrum Pharmaceuticals to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SPPI’s future growth? Take a look at our free research report of analyst consensus for SPPI’s outlook.
- Valuation: What is SPPI 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 SPPI 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 pass 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.