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Investors are always looking for growth in small-cap stocks like Stefanel Sp.A. (BIT:STEF), with a market cap of €49.66M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into STEF here.
How does STEF’s operating cash flow stack up against its debt?
STEF’s debt levels have fallen from €93.07M to €62.73M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, STEF currently has €22.36M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of STEF’s operating efficiency ratios such as ROA here.
Can STEF meet its short-term obligations with the cash in hand?
Looking at STEF’s most recent €845.00K liabilities, the company has been able to meet these obligations given the level of current assets of €46.28M, with a current ratio of 54.76x. However, anything above 3x is considered high and could mean that STEF has too much idle capital in low-earning investments.
Does STEF face the risk of succumbing to its debt-load?
With total debt exceeding equities, STEF is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
STEF’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 an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how STEF has been performing in the past. You should continue to research Stefanel to get a better picture of the stock by looking at:
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Historical Performance: What has STEF’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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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.