Ionis Pharmaceuticals (NASDAQ:IONS) weighed down by its debt?
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 synonymous with risk.” So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. We note that Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) has debt on its balance sheet. But the more important question is: what risk does this debt create?
When is debt a problem?
Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. 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. When we look at debt levels, we first consider cash and debt levels, together.
Check out our latest analysis for Ionis Pharmaceuticals
What is Ionis Pharmaceuticals’ net debt?
The image below, which you can click on for more details, shows that as of December 2021, Ionis Pharmaceuticals had $1.23 billion in debt, up from $939.6 million in one year. But on the other hand, it also has $2.15 billion in cash, resulting in a net cash position of $916.1 million.
How healthy is Ionis Pharmaceuticals’ balance sheet?
Zooming in on the latest balance sheet data, we can see that Ionis Pharmaceuticals had liabilities of US$240.6 million due within 12 months and liabilities of US$1.60 billion due beyond. In return, he had $2.15 billion in cash and $61.9 million in receivables due within 12 months. He can therefore boast of having $367.0 million more in liquid assets than total Passives.
This surplus suggests that Ionis Pharmaceuticals has a conservative balance sheet, and could probably eliminate its debt without too much difficulty. Simply put, the fact that Ionis Pharmaceuticals 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 it is future earnings, more than anything, that will determine Ionis Pharmaceuticals’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Year-over-year, Ionis Pharmaceuticals posted revenue of $810 million, a gain of 11%, although it reported no earnings before interest and taxes. This growth rate is a little slow for our liking, but it takes all types to make a world.
So how risky is Ionis Pharmaceuticals?
Although Ionis Pharmaceuticals posted a loss of earnings before interest and taxes (EBIT) in the last twelve months, it generated a positive free cash flow of US$13 million. So taking that at face value and given the net cash position, we don’t think the stock is too risky in the near term. With lackluster revenue growth over the past year, we don’t find the investment opportunity particularly attractive. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example, we have identified 1 warning sign for Ionis Pharmaceuticals of which you should be aware.
If you are interested in investing in businesses that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.