Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Orion Group Holdings, Inc. (NYSE:ORN) does carry debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Orion Group Holdings's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of March 2024 Orion Group Holdings had US$64.2m of debt, an increase on US$55.8m, over one year. However, because it has a cash reserve of US$4.64m, its net debt is less, at about US$59.5m.
A Look At Orion Group Holdings' Liabilities
According to the last reported balance sheet, Orion Group Holdings had liabilities of US$163.6m due within 12 months, and liabilities of US$84.0m due beyond 12 months. On the other hand, it had cash of US$4.64m and US$203.5m worth of receivables due within a year. So its liabilities total US$39.3m more than the combination of its cash and short-term receivables.
Of course, Orion Group Holdings has a market capitalization of US$327.6m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Orion Group Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Orion Group Holdings made a loss at the EBIT level, and saw its revenue drop to US$713m, which is a fall of 2.6%. We would much prefer see growth.
Caveat Emptor
Over the last twelve months Orion Group Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$317k at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$12m of cash over the last year. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Orion Group Holdings (of which 1 doesn't sit too well with us!) you should know about.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.