Investors are always looking for growth in small-cap stocks like Jutal Offshore Oil Services Limited (HKG:3303), with a market cap of CN¥1.72b. However, an important fact which most ignore is: how financially healthy is the business? Energy Services companies, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into 3303 here.
How much cash does 3303 generate through its operations?
3303’s debt levels surged from CN¥213.63m to CN¥925.77m over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, 3303 currently has CN¥1.45b 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 assess some of 3303’s operating efficiency ratios such as ROA here.
Can 3303 pay its short-term liabilities?
With current liabilities at CN¥2.03b, it appears that the company has been able to meet these obligations given the level of current assets of CN¥2.80b, with a current ratio of 1.38x. Usually, for Energy Services companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 3303 service its debt comfortably?
With debt reaching 44.96% of equity, 3303 may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Next Steps:
3303’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 3303 has been performing in the past. You should continue to research Jutal Offshore Oil Services to get a more holistic view of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for 3303’s future growth? Take a look at our free research report of analyst consensus for 3303’s outlook.
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Valuation: What is 3303 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 3303 is currently mispriced by the market.
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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 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.