What Investors Should Know About At Home Group Inc.’s (NYSE:HOME) Financial Strength
While small-cap stocks, such as At Home Group Inc. (NYSE:HOME) with its market cap of US$1.3b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Specialty Retail businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into HOME here.
How much cash does HOME generate through its operations?
Over the past year, HOME has ramped up its debt from US$507m to US$567m – this includes long-term debt. With this rise in debt, HOME currently has US$13m remaining in cash and short-term investments , ready to deploy into the business. Additionally, HOME has produced US$100m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 18%, indicating that HOME’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HOME’s case, it is able to generate 0.18x cash from its debt capital.
Can HOME pay its short-term liabilities?
With current liabilities at US$462m, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$395m, with a current ratio of 0.85x.
Does HOME face the risk of succumbing to its debt-load?
HOME is a relatively highly levered company with a debt-to-equity of 83%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In HOME’s case, the ratio of 4.71x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
Although HOME’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how HOME has been performing in the past. I suggest you continue to research At Home Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HOME’s future growth? Take a look at our free research report of analyst consensus for HOME’s outlook.
Historical Performance: What has HOME’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.
