Does Allot (NASDAQ:ALLT) use debt in a risky way?
Warren Buffett said: “Volatility is far from synonymous with risk. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We can see that Allot Ltd. (NASDAQ:ALLT) uses debt in its business. But does this debt worry shareholders?
When is debt dangerous?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, many companies use debt to finance their growth, without any negative consequences. The first thing to do when considering how much debt a business has is to look at its cash flow and debt together.
What is the allocated debt?
The image below, which you can click on for more details, shows that in March 2022, Allot had $39.4 million in debt, up from none in a year. But he also has $115.5 million in cash to offset that, meaning he has a net cash of $76.1 million.
How strong is Allot’s balance sheet?
Zooming in on the latest balance sheet data, we can see that Allot had liabilities of US$55.7 million due within 12 months and liabilities of US$59.3 million due beyond. In return, he had $115.5 million in cash and $40.8 million in receivables due within 12 months. So he actually has 41.4 million US dollars After liquid assets than total liabilities.
This surplus suggests that Allot is using debt in a way that seems both safe and conservative. Because he has a lot of assets, he is unlikely to have any problems with his lenders. In short, Allot has clean cash, so it’s fair to say that it doesn’t have a lot of debt! The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Allot’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Year-over-year, Allot posted revenue of $146 million, a 6.2% gain, although it reported no earnings before interest and taxes. This rate of growth is a little slow for our liking, but it takes all types to make a world.
So how risky is attribution?
By their very nature, companies that lose money are riskier than those with a long history of profitability. And we note that Allot has posted a loss in earnings before interest and taxes (EBIT) over the past year. And during the same period, it recorded a negative free cash outflow of US$26 million and recorded a book loss of US$17 million. With just $76.1 million on the balance sheet, it looks like it will soon have to raise capital again. Overall, its balance sheet doesn’t look too risky, at the moment, but we’re still cautious until we see positive free cash flow. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. For example, we have identified 1 warning sign for Allot of which you should be aware.
If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-flowing growth stocks without further ado.
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