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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. Like many other companies Abeona Therapeutics Inc. (NASDAQ: ABEO) uses debt. But the real question is whether this debt makes the business risky.
What risk does debt entail?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. Ultimately, if the company can’t meet its legal debt repayment obligations, shareholders could walk away with nothing. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
Check out our latest review for Abeona Therapeutics
What is Abeona Therapeutics’ debt?
As you can see below, Abeona Therapeutics was in debt of US $ 1.76 million, as of June 2021, which is roughly the same as the year before. You can click on the graph for more details. However, his balance sheet shows that he holds $ 77.6 million in cash, so he actually has $ 75.8 million in net cash.
How healthy is Abeona Therapeutics’ track record?
The latest balance sheet data shows that Abeona Therapeutics had debts of $ 41.9 million maturing within one year, and debts of $ 4.72 million maturing thereafter. On the other hand, he had cash of $ 77.6 million and receivables of $ 7.00 million within one year. So he actually has $ 38.0 million Following liquid assets as total liabilities.
This surplus strongly suggests that Abeona Therapeutics has a rock solid balance sheet (and debt is not of concern). With this in mind, one could postulate that its track record means that the company is able to cope with some adversity. Put simply, the fact that Abeona Therapeutics has more cash than debt is arguably a good indication that it can safely manage its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Abeona Therapeutics can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Although it did not make a profit, at least Abeona Therapeutics recorded its first income as a publicly traded company in the past twelve months.
So how risky is Abeona Therapeutics?
We are convinced that loss-making companies are, in general, riskier than profitable ones. And the point is that over the past twelve months, Abeona Therapeutics has lost money in earnings before interest and taxes (EBIT). And during the same period, it recorded negative free cash outflows of US $ 38 million and a book loss of US $ 54 million. But at least he has $ 75.8 million on the balance sheet to spend on short-term growth. Abeona Therapeutics’ revenue growth has shone over the past year, so it may well be able to turn a profit in due course. Nonprofits are often risky, but they can also offer great rewards. 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, Abeona Therapeutics has 4 warning signs (and 1 which is a bit disturbing) we think you should be aware of.
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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