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With a market capitalization of HK$305b, Meituan Dianping (HKG:3690) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for 3690, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
View our latest analysis for Meituan Dianping
Does 3690 Produce Much Cash Relative To Its Debt?
3690’s debt levels have fallen from CN¥102b to CN¥2.3b over the last 12 months , which also accounts for long term debt. With this debt payback, 3690 currently has CN¥59b remaining in cash and short-term investments , 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 3690’s operating efficiency ratios such as ROA here.
Can 3690 pay its short-term liabilities?
At the current liabilities level of CN¥32b, the company has been able to meet these obligations given the level of current assets of CN¥73b, with a current ratio of 2.3x. The current ratio is the number you get when you divide current assets by current liabilities. For Online Retail companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 3690 service its debt comfortably?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. 3690’s level of debt is low relative to its total equity, at 2.6%. 3690 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is virtually non-existent with 3690, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
Although 3690’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for 3690’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Meituan Dianping to get a more holistic view of the stock by looking at: