Yahoo Finance Pier 1 Imports Inc (NYSE:PIR): Time For A Financial Health Check
While small-cap stocks, such as Pier 1 Imports Inc (NYSE:PIR) with its market cap of US$237.57m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into PIR here.
How does PIR’s operating cash flow stack up against its debt?
PIR has sustained its debt level by about US$199.91m over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$135.38m , ready to deploy into the business. On top of this, PIR has generated cash from operations of US$65.81m in the last twelve months, resulting in an operating cash to total debt ratio of 32.92%, signalling that PIR’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In PIR’s case, it is able to generate 0.33x cash from its debt capital.
Can PIR pay its short-term liabilities?
Looking at PIR’s most recent US$237.13m liabilities, the company has been able to meet these commitments with a current assets level of US$553.76m, leading to a 2.34x current account ratio. For Specialty Retail companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is PIR’s debt level acceptable?
With debt reaching 72.02% of equity, PIR may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In PIR’s case, the ratio of 3.51x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving PIR ample headroom to grow its debt facilities.
Next Steps:
Although PIR’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around PIR’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure PIR has company-specific issues impacting its capital structure decisions. You should continue to research Pier 1 Imports to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for PIR’s future growth? Take a look at our free research report of analyst consensus for PIR’s outlook.
Valuation: What is PIR 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 PIR 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 pass 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.
