Is LAMDA Development SA.’s (ATH:LAMDA) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like LAMDA Development SA. (ATSE:LAMDA), with a market cap of €471.03M. However, an important fact which most ignore is: how financially healthy is the business? Given that LAMDA is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into LAMDA here.
Does LAMDA generate enough cash through operations?
LAMDA’s debt levels surged from €285.23M to €443.18M over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, LAMDA currently has €114.40M remaining in cash and short-term investments for investing into the business. Moreover, LAMDA has produced €28.43M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 6.42%, meaning that LAMDA’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In LAMDA’s case, it is able to generate 0.064x cash from its debt capital.
Can LAMDA meet its short-term obligations with the cash in hand?
Looking at LAMDA’s most recent €255.17M liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.63x, which is below the prudent industry ratio of 3x.
Does LAMDA face the risk of succumbing to its debt-load?
With total debt exceeding equities, LAMDA is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since LAMDA is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
LAMDA’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure LAMDA has company-specific issues impacting its capital structure decisions. I suggest you continue to research LAMDA Development to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for LAMDA’s future growth? Take a look at our free research report of analyst consensus for LAMDA’s outlook.
Valuation: What is LAMDA 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 LAMDA 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.
