David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We can see that NeoGenomics, Inc. (NASDAQ:NEO) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is NeoGenomics's Net Debt?
The chart below, which you can click on for greater detail, shows that NeoGenomics had US$539.7m in debt in June 2024; about the same as the year before. However, it does have US$387.9m in cash offsetting this, leading to net debt of about US$151.8m.
A Look At NeoGenomics' Liabilities
The latest balance sheet data shows that NeoGenomics had liabilities of US$290.0m due within a year, and liabilities of US$437.4m falling due after that. Offsetting these obligations, it had cash of US$387.9m as well as receivables valued at US$148.1m due within 12 months. So its liabilities total US$191.5m more than the combination of its cash and short-term receivables.
Given NeoGenomics has a market capitalization of US$1.72b, it's hard to believe these liabilities pose much threat. 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 NeoGenomics's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year NeoGenomics wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to US$628m. We usually like to see faster growth from unprofitable companies, but each to their own.
Caveat Emptor
Importantly, NeoGenomics had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$87m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$30m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that NeoGenomics is showing 1 warning sign in our investment analysis , you should know about...
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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.
