Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Maravai LifeSciences Holdings's Debt?
The chart below, which you can click on for greater detail, shows that Maravai LifeSciences Holdings had US$521.7m in debt in September 2024; about the same as the year before. But it also has US$578.2m in cash to offset that, meaning it has US$56.4m net cash.
How Strong Is Maravai LifeSciences Holdings' Balance Sheet?
We can see from the most recent balance sheet that Maravai LifeSciences Holdings had liabilities of US$63.2m falling due within a year, and liabilities of US$601.8m due beyond that. On the other hand, it had cash of US$578.2m and US$28.9m worth of receivables due within a year. So its liabilities total US$58.1m more than the combination of its cash and short-term receivables.
Since publicly traded Maravai LifeSciences Holdings shares are worth a total of US$1.39b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Maravai LifeSciences Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Maravai LifeSciences Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Maravai LifeSciences Holdings had a loss before interest and tax, and actually shrunk its revenue by 34%, to US$277m. That makes us nervous, to say the least.
So How Risky Is Maravai LifeSciences Holdings?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Maravai LifeSciences Holdings had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$12m of cash and made a loss of US$225m. Given it only has net cash of US$56.4m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Case in point: We've spotted 1 warning sign for Maravai LifeSciences Holdings you should be aware of.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.
