Yahoo Finance What Investors Should Know About Superior Industries International Inc’s (NYSE:SUP) Financial Strength
Superior Industries International Inc (NYSE:SUP) is a small-cap stock with a market capitalization of US$483.87m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since SUP is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into SUP here.
How much cash does SUP generate through its operations?
In the previous 12 months, SUP’s rose by about US$683.55m – this includes both the current and long-term debt. With this increase in debt, SUP currently has US$47.11m remaining in cash and short-term investments , ready to deploy into the business. On top of this, SUP has generated cash from operations of US$63.71m during the same period of time, leading to an operating cash to total debt ratio of 9.32%, signalling that SUP’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In SUP’s case, it is able to generate 0.093x cash from its debt capital.
Can SUP pay its short-term liabilities?
Looking at SUP’s most recent US$195.06m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$417.38m, with a current ratio of 2.14x. Generally, for Auto Components companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is SUP’s debt level acceptable?
SUP is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since SUP is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
SUP’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure SUP has company-specific issues impacting its capital structure decisions. I suggest you continue to research Superior Industries International to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SUP’s future growth? Take a look at our free research report of analyst consensus for SUP’s outlook.
Valuation: What is SUP 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 SUP is currently mispriced by the market.
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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
