Yahoo Finance Why Alarmcom Holdings Inc (NASDAQ:ALRM) Is A Financially Healthy Company
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Alarmcom Holdings Inc (NASDAQ:ALRM), with a market cap of US$2.14b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. ALRM’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into ALRM here. View out our latest analysis for Alarm.com Holdings
How does ALRM’s operating cash flow stack up against its debt?
ALRM has built up its total debt levels in the last twelve months, from US$6.70m to US$0 , which is made up of current and long term debt. With this growth in debt, ALRM currently has US$96.33m remaining in cash and short-term investments , ready to deploy into the business. Additionally, ALRM has produced US$57.19m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 80.55%, signalling that ALRM’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ALRM’s case, it is able to generate 0.81x cash from its debt capital.
Does ALRM’s liquid assets cover its short-term commitments?
With current liabilities at US$44.50m, it appears that the company has been able to meet these obligations given the level of current assets of US$163.94m, with a current ratio of 3.68x. However, anything about 3x may be excessive, since ALRM may be leaving too much capital in low-earning investments.
Is ALRM’s debt level acceptable?
With debt at 27.97% of equity, ALRM may be thought of as appropriately levered. This range is considered safe as ALRM is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether ALRM 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 ALRM’s, case, the ratio of 19.52x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving ALRM ample headroom to grow its debt facilities.
Next Steps:
ALRM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for ALRM’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Alarm.com Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ALRM’s future growth? Take a look at our free research report of analyst consensus for ALRM’s outlook.
Valuation: What is ALRM 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 ALRM 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.
