What You Must Know About Nuvectra Corporation’s (NASDAQ:NVTR) Financial Strength
While small-cap stocks, such as Nuvectra Corporation (NASDAQ:NVTR) with its market cap of US$376.5m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Medical Equipment companies, especially ones that are currently loss-making, tend to be high risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into NVTR here.
Does NVTR produce enough cash relative to debt?
Over the past year, NVTR has ramped up its debt from US$14.0m to US$38.7m , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at US$43.7m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 examine some of NVTR’s operating efficiency ratios such as ROA here.
Does NVTR’s liquid assets cover its short-term commitments?
At the current liabilities level of US$14.7m liabilities, the company has been able to meet these obligations given the level of current assets of US$60.2m, with a current ratio of 4.09x. Though, anything above 3x is considered high and could mean that NVTR has too much idle capital in low-earning investments.
Is NVTR’s debt level acceptable?
NVTR is a relatively highly levered company with a debt-to-equity of 74.9%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since NVTR is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
NVTR’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how NVTR has been performing in the past. I recommend you continue to research Nuvectra to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for NVTR’s future growth? Take a look at our free research report of analyst consensus for NVTR’s outlook.
Historical Performance: What has NVTR’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 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 editorial-team@simplywallst.com.
