Yahoo Finance Pegasystems Inc (NASDAQ:PEGA): Financial Strength Analysis
Stocks with market capitalization between $2B and $10B, such as Pegasystems Inc (NASDAQ:PEGA) with a size of US$4.29b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at PEGA’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into PEGA here. Check out our latest analysis for Pegasystems
Can PEGA 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. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that Pegasystems has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with PEGA, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does PEGA’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Pegasystems has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at PEGA’s most recent US$323.99m liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$512.30m, leading to a 1.58x current account ratio. Generally, for Software companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Next Steps:
PEGA has no debt in addition to ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and its investors, though, some degree of debt may also ramp up earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure PEGA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Pegasystems to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for PEGA’s future growth? Take a look at our free research report of analyst consensus for PEGA’s outlook.
Valuation: What is PEGA 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 PEGA is currently mispriced by the market.
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.