Yahoo Finance Halmont Properties Corporation (CVE:HMT): Time For A Financial Health Check
While small-cap stocks, such as Halmont Properties Corporation (CVE:HMT) with its market cap of CA$80m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into HMT here.
How much cash does HMT generate through its operations?
Over the past year, HMT has ramped up its debt from CA$53m to CA$64m , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at CA$52k for investing into the business. Additionally, HMT has produced cash from operations of CA$2m in the last twelve months, resulting in an operating cash to total debt ratio of 2.8%, meaning that HMT’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HMT’s case, it is able to generate 0.028x cash from its debt capital.
Can HMT pay its short-term liabilities?
Looking at HMT’s most recent CA$16m liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of CA$2m, with a current ratio of 0.11x.
Does HMT face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 97%, HMT can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether HMT is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In HMT’s, case, the ratio of 3.39x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as HMT’s high interest coverage is seen as responsible and safe practice.
Next Steps:
With a high level of debt on its balance sheet, HMT could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for HMT to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure HMT has company-specific issues impacting its capital structure decisions. I recommend you continue to research Halmont Properties to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HMT’s future growth? Take a look at our free research report of analyst consensus for HMT’s outlook.
Valuation: What is HMT 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 HMT 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.
