Yahoo Finance What does CalAmp Corp’s (NASDAQ:CAMP) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as CalAmp Corp (NASDAQ:CAMP) with its market cap of US$606m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Communications industry, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into CAMP here.
How does CAMP’s operating cash flow stack up against its debt?
Over the past year, CAMP has ramped up its debt from US$151m to US$269m – this includes both the current and long-term debt. With this increase in debt, CAMP currently has US$305m remaining in cash and short-term investments for investing into the business. On top of this, CAMP has generated US$68m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 25%, indicating that CAMP’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CAMP’s case, it is able to generate 0.25x cash from its debt capital.
Can CAMP meet its short-term obligations with the cash in hand?
Looking at CAMP’s most recent US$96m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.39x. However, many consider anything above 3x to be quite high and could mean that CAMP has too much idle capital in low-earning investments.
Is CAMP’s debt level acceptable?
CAMP is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 CAMP’s case, the ratio of 1.89x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as CAMP’s low interest coverage already puts the company at higher risk of default.
Next Steps:
Although CAMP’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how CAMP has been performing in the past. I suggest you continue to research CalAmp to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for CAMP’s future growth? Take a look at our free research report of analyst consensus for CAMP’s outlook.
Valuation: What is CAMP 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 CAMP 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 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.
