Neos Therapeutics Inc (NASDAQ:NEOS): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Neos Therapeutics Inc (NASDAQ:NEOS), with a market cap of US$262.42M. However, an important fact which most ignore is: how financially healthy is the business? Pharmaceuticals companies, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into NEOS here.
How does NEOS’s operating cash flow stack up against its debt?
NEOS’s debt levels have fallen from US$63.52M to US$59.83M over the last 12 months , which is made up of current and long term debt. With this debt payback, NEOS’s cash and short-term investments stands at US$50.42M for investing 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of NEOS’s operating efficiency ratios such as ROA here.
Can NEOS meet its short-term obligations with the cash in hand?
With current liabilities at US$37.60M, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.2x. Generally, for Pharmaceuticals companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is NEOS’s debt level acceptable?
With total debt exceeding equities, NEOS is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since NEOS is presently unprofitable, there’s a question of sustainability of its current operations. 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:
At its current level of cash flow coverage, NEOS has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for NEOS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Neos Therapeutics to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for NEOS’s future growth? Take a look at our free research report of analyst consensus for NEOS’s outlook.
2. Valuation: What is NEOS 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 NEOS is currently mispriced by the market.
3. 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.
