Investors are always looking for growth in small-cap stocks like Invitae Corporation ( NYSE:NVTA ), with a market cap of US$2.2b. However, an important fact which most ignore is: how financially healthy is the business? Since NVTA is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, potential investors would need to take a closer look, and I recommend you dig deeper yourself into NVTA here .
Does NVTA Produce Much Cash Relative To Its Debt?
NVTA's debt levels surged from US$44m to US$78m over the last 12 months , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$126m , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. 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 NVTA’s operating efficiency ratios such as ROA here .
Can NVTA pay its short-term liabilities?
At the current liabilities level of US$36m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.56x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors.
Can NVTA service its debt comfortably?
With debt reaching 48% of equity, NVTA may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since NVTA 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.
Although NVTA’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around NVTA's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for NVTA's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Invitae to get a better picture of the small-cap by looking at:
- Future Outlook : What are well-informed industry analysts predicting for NVTA’s future growth? Take a look at our free research report of analyst consensus for NVTA’s outlook.
- Historical Performance : What has NVTA'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 .
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