GW Pharmaceuticals plc (NASDAQ:GWPH): Financial Strength Analysis

Simply Wall St - finance.yahoo.com Posted 5 years ago
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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like GW Pharmaceuticals plc (NASDAQ:GWPH), with a market cap of US$5.1b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Let’s take a look at GWPH’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into GWPH here.

View our latest analysis for GW Pharmaceuticals

GWPH’s Debt (And Cash Flows)

GWPH has shrunk its total debt levels in the last twelve months, from US$18m to US$5.7m , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$591m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of GWPH’s operating efficiency ratios such as ROA here.

Can GWPH meet its short-term obligations with the cash in hand?

At the current liabilities level of US$66m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 9.77x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.

NasdaqGM:GWPH Historical Debt, April 9th 2019
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Can GWPH service its debt comfortably?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For GW Pharmaceuticals, investors should not worry about its debt levels because the company has very, very little on its balance sheet! It has been operating its business with miniscule debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with GWPH, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

Although GWPH’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for GWPH's financial health. Other important fundamentals need to be considered alongside. You should continue to research GW Pharmaceuticals to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for GWPH’s future growth? Take a look at our free research report of analyst consensus for GWPH’s outlook.
  2. Valuation: What is GWPH 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 GWPH is currently mispriced by the market.
  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.