Investors are always looking for growth in small-cap stocks like Wireless Telecom Group Inc (AMEX:WTT), with a market cap of US$49.72M. However, an important fact which most ignore is: how financially healthy is the business? Electronic companies, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into WTT here.
Does WTT generate an acceptable amount of cash through operations?
In the previous 12 months, WTT’s rose by about US$1.83M comprising of short- and long-term debt. With this ramp up in debt, the current cash and short-term investment levels stands at US$2.46M for investing into the business. Additionally, WTT has produced cash from operations of US$1.40M during the same period of time, resulting in an operating cash to total debt ratio of 76.71%, meaning that WTT’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In WTT’s case, it is able to generate 0.77x cash from its debt capital.
Does WTT’s liquid assets cover its short-term commitments?
At the current liabilities level of US$8.97M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.54x. Generally, for Electronic companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can WTT service its debt comfortably?
With debt at 9.60% of equity, WTT may be thought of as having low leverage. WTT is not taking on too much debt commitment, which may be constraining for future growth. WTT’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.
WTT’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how WTT has been performing in the past. I suggest you continue to research Wireless Telecom Group to get a more holistic view of the stock by looking at:
- Valuation: What is WTT 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 WTT is currently mispriced by the market.
- Historical Performance: What has WTT’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.