With a market capitalization of US$11b, Seattle Genetics, Inc. (NASDAQ:SGEN) 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. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for SGEN to determine is solvency and liquidity and whether the stock is a sound investment.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Does SGEN Produce Much Cash Relative To Its Debt?
SGEN has increased its debt level by about US$67m over the last 12 months – which includes long-term debt. With this ramp up in debt, the current cash and short-term investment levels stands at US$418m to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of SGEN’s operating efficiency ratios such as ROA here.
Does SGEN’s liquid assets cover its short-term commitments?
At the current liabilities level of US$208m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.27x. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors.
Does SGEN face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. SGEN’s level of debt is low relative to its total equity, at 5.1%. SGEN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for SGEN, and the company also has the ability and headroom to increase debt if needed going forward.
SGEN’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. This is only a rough assessment of financial health, and I'm sure SGEN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Seattle Genetics to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SGEN’s future growth? Take a look at our free research report of analyst consensus for SGEN’s outlook.
- Valuation: What is SGEN 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 SGEN 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.