Yahoo Finance How Financially Strong Is Westport Fuel Systems Inc (TSE:WPRT)?
Investors are always looking for growth in small-cap stocks like Westport Fuel Systems Inc (TSE:WPRT), with a market cap of CA$436m. However, an important fact which most ignore is: how financially healthy is the business? Given that WPRT is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I recommend you dig deeper yourself into WPRT here.
How much cash does WPRT generate through its operations?
WPRT’s debt levels have fallen from US$79m to US$51m over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, WPRT currently has US$49m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of WPRT’s operating efficiency ratios such as ROA here.
Does WPRT’s liquid assets cover its short-term commitments?
At the current liabilities level of US$120m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.52x. Usually, for Machinery companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is WPRT’s debt level acceptable?
WPRT is a relatively highly levered company with a debt-to-equity of 51%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since WPRT is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
WPRT’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure WPRT has company-specific issues impacting its capital structure decisions. You should continue to research Westport Fuel Systems to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for WPRT’s future growth? Take a look at our free research report of analyst consensus for WPRT’s outlook.
Valuation: What is WPRT 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 WPRT 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.
