What You Should Know About ScandiDos AB (publ)'s (STO:SDOS) Financial Strength
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Investors are always looking for growth in small-cap stocks like ScandiDos AB (publ) (STO:SDOS), with a market cap of kr162m. However, an important fact which most ignore is: how financially healthy is the business? Given that SDOS is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into SDOS here.
Does SDOS Produce Much Cash Relative To Its Debt?
SDOS's debt levels surged from kr2.6m to kr18m over the last 12 months , which includes long-term debt. With this increase in debt, SDOS's cash and short-term investments stands at kr2.0m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of SDOS’s operating efficiency ratios such as ROA here.
Can SDOS meet its short-term obligations with the cash in hand?
At the current liabilities level of kr39m, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.91x. The current ratio is calculated by dividing current assets by current liabilities.
Is SDOS’s debt level acceptable?
SDOS is a relatively highly levered company with a debt-to-equity of 62%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since SDOS is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
SDOS’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for SDOS's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research ScandiDos to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SDOS’s future growth? Take a look at our free research report of analyst consensus for SDOS’s outlook.
Valuation: What is SDOS 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 SDOS 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.
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