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 BigCommerce Holdings, Inc. (NASDAQ:BIGC) does use debt in its business. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
What Is BigCommerce Holdings's Net Debt?
The chart below, which you can click on for greater detail, shows that BigCommerce Holdings had US$340.9m in debt in June 2024; about the same as the year before. However, because it has a cash reserve of US$275.8m, its net debt is less, at about US$65.1m.
How Strong Is BigCommerce Holdings' Balance Sheet?
According to the last reported balance sheet, BigCommerce Holdings had liabilities of US$78.8m due within 12 months, and liabilities of US$347.6m due beyond 12 months. Offsetting this, it had US$275.8m in cash and US$45.1m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$105.5m.
While this might seem like a lot, it is not so bad since BigCommerce Holdings has a market capitalization of US$442.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if BigCommerce Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year BigCommerce Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to US$324m. We usually like to see faster growth from unprofitable companies, but each to their own.
Caveat Emptor
Importantly, BigCommerce Holdings had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$38m 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. Another cause for caution is that is bled US$14m in negative free cash flow over the last twelve months. 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 2 warning signs for BigCommerce Holdings 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.
