Does AngioDynamics (NASDAQ: ANGO) use debt in a risky way?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” So it can be obvious that you need to consider debt, when you think about how risky a given stock is, because too much debt can sink a business. Mostly, AngioDynamics, Inc. (NASDAQ: ANGO) is in debt. But should shareholders be concerned about its use of debt?
When is debt dangerous?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
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How much debt does AngioDynamics carry?
The image below, which you can click for more details, shows that in February 2021, AngioDynamics was in debt of US $ 30.0 million, up from US $ 14.3 million in a year. However, his balance sheet shows that he holds $ 54.5 million in cash, so he actually has net cash of $ 24.5 million.
How strong is AngioDynamics’ balance sheet?
The latest balance sheet data shows that AngioDynamics had a liability of $ 50.3 million due within one year, and a liability of $ 77.1 million due thereafter. On the other hand, he had $ 54.5 million in cash and $ 33.2 million in receivables within a year. Its liabilities therefore total US $ 39.7 million more than the combination of its cash and short-term receivables.
Given that AngioDynamics has a market cap of US $ 876.8 million, it’s hard to believe that these liabilities pose a big threat. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. While he has some liabilities to note, AngioDynamics also has more cash than debt, so we’re pretty confident that he can handle his debt safely. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is future profits, more than anything, that will determine AngioDynamics’ ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
In the last year, AngioDynamics’ revenue was rather stable and generated negative EBIT. While not too bad, we would rather see some growth.
So how risky is AngioDynamics?
Although AngioDynamics recorded a loss of earnings before interest and taxes (EBIT) over the past twelve months, it generated positive free cash flow of US $ 9.7 million. Thus, although it is in deficit, it does not appear to present too much short-term balance sheet risk, given the net cash position. Until we see positive EBIT, we remain a little cautious about the stock, especially given the rather modest revenue growth. The balance sheet is clearly the area you need to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. For example – AngioDynamics has 2 warning signs we think you should be aware.
At the end of the day, it’s often best to focus on businesses with no net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.
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