In This Article:
While small-cap stocks, such as ArtGo Holdings Limited (HKG:3313) with its market cap of HK$825.6m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since 3313 is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into 3313 here.
Does 3313 produce enough cash relative to debt?
3313 has sustained its debt level by about CN¥464.0m over the last 12 months – this includes both the current and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at CN¥18.5m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of 3313’s operating efficiency ratios such as ROA here.
Can 3313 pay its short-term liabilities?
Looking at 3313’s most recent CN¥515.4m liabilities, the company has been able to meet these obligations given the level of current assets of CN¥668.2m, with a current ratio of 1.3x. Generally, for Basic Materials companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does 3313 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 22.4%, 3313’s debt level may be seen as prudent. 3313 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for 3313, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
3313’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 3313’s financial health. Other important fundamentals need to be considered alongside. You should continue to research ArtGo Holdings to get a more holistic view of the stock by looking at:
-
Future Outlook: What are well-informed industry analysts predicting for 3313’s future growth? Take a look at our free research report of analyst consensus for 3313’s outlook.
-
Historical Performance: What has 3313’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.