While small-cap stocks, such as P2P Transport Limited (ASX:P2P) with its market cap of AU$65.7m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that P2P is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into P2P here.
How much cash does P2P generate through its operations?
P2P’s debt levels surged from AU$1.5m to AU$6.7m over the last 12 months . With this growth in debt, P2P currently has AU$3.6m 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 P2P’s operating efficiency ratios such as ROA here.
Can P2P pay its short-term liabilities?
Looking at P2P’s most recent AU$8.5m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of AU$10.9m, with a current ratio of 1.29x. Usually, for Transportation companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is P2P’s debt level acceptable?
P2P’s level of debt is appropriate relative to its total equity, at 36.9%. This range is considered safe as P2P is not taking on too much debt obligation, which may be constraining for future growth. P2P’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
P2P’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 proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for P2P’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research P2P Transport to get a better picture of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for P2P’s future growth? Take a look at our free research report of analyst consensus for P2P’s outlook.
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Valuation: What is P2P 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 P2P 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.