Yahoo Finance Would GoPro (NASDAQ:GPRO) Might Be Better Off With Less Debt
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that GoPro, Inc. (NASDAQ:GPRO) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for GoPro
What Is GoPro's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2019 GoPro had US$143.8m of debt, an increase on US$134.4m, over one year. However, it does have US$130.1m in cash offsetting this, leading to net debt of about US$13.7m.
How Healthy Is GoPro's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that GoPro had liabilities of US$263.6m due within 12 months and liabilities of US$238.3m due beyond that. On the other hand, it had cash of US$130.1m and US$144.6m worth of receivables due within a year. So it has liabilities totalling US$227.1m more than its cash and near-term receivables, combined.
This deficit isn't so bad because GoPro is worth US$560.7m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine GoPro's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year GoPro managed to grow its revenue by 4.2%, to US$1.2b. We usually like to see faster growth from unprofitable companies, but each to their own.
Caveat Emptor
Over the last twelve months GoPro produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$9.0m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$9.0m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. For riskier companies like GoPro I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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