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How Financially Strong Is SMTC Corporation (NASDAQ:SMTX)?

While small-cap stocks, such as SMTC Corporation (NASDAQ:SMTX) with its market cap of US$51.53M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Electronic companies, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into SMTX here.

Does SMTX generate enough cash through operations?

SMTX’s debt levels surged from US$13.39M to US$20.45M over the last 12 months – this includes both the current and long-term debt. With this rise in debt, SMTX’s cash and short-term investments stands at US$5.54M , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. 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 SMTX’s operating efficiency ratios such as ROA here.

Can SMTX pay its short-term liabilities?

At the current liabilities level of US$44.69M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$59.19M, with a current ratio of 1.32x. For Electronic companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NasdaqGM:SMTX Historical Debt Jun 4th 18
NasdaqGM:SMTX Historical Debt Jun 4th 18

Is SMTX’s debt level acceptable?

With a debt-to-equity ratio of 90.95%, SMTX can be considered as an above-average leveraged 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 SMTX is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

SMTX’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, 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 SMTX’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research SMTC to get a better picture of the stock by looking at:

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  1. Historical Performance: What has SMTX’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.

  2. 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.