With a market capitalization of HK$208b, Galaxy Entertainment Group Limited (HKG:27) 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. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for 27 to determine is solvency and liquidity and whether the stock is a sound investment.
See our latest analysis for Galaxy Entertainment Group
How does 27’s operating cash flow stack up against its debt?
27’s debt levels surged from HK$6.7b to HK$8.8b over the last 12 months , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at HK$9.2b for investing into the business. On top of this, 27 has generated cash from operations of HK$16b in the last twelve months, resulting in an operating cash to total debt ratio of 184%, meaning that 27’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 27’s case, it is able to generate 1.84x cash from its debt capital.
Does 27’s liquid assets cover its short-term commitments?
At the current liabilities level of HK$23b, the company may not be able to easily meet these obligations given the level of current assets of HK$11b, with a current ratio of 0.5x.
Does 27 face the risk of succumbing to its debt-load?
With debt at 14% of equity, 27 may be thought of as appropriately levered. 27 is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
27’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, as shareholders, you should try and determine whether this level of debt is justified for 27, especially if meeting short-term obligations could also bring about issues. I admit this is a fairly basic analysis for 27’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Galaxy Entertainment Group to get a better picture of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for 27’s future growth? Take a look at our free research report of analyst consensus for 27’s outlook.
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Valuation: What is 27 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 27 is currently mispriced by the market.
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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.