Is Aspen Aerogels (NYSE:ASPN) a risky investment?
Warren Buffett said: “Volatility is far from synonymous with risk. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. We note that Aspen Aerogels, Inc. (NYSE:ASPN) has debt on its balance sheet. But the more important question is: what risk does this debt create?
When is debt a problem?
Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt together.
See our latest analysis for Aspen Airgels
How much debt does Aspen Aerogels have?
The image below, which you can click on for more details, shows that in March 2022, Aspen Aerogels had $100.6 million in debt, up from $3.67 million in one year. But on the other hand, he also has $205.2 million in cash, resulting in a net cash position of $104.5 million.
A Look at Aspen Aerogels’ Responsibilities
We can see from the most recent balance sheet that Aspen Aerogels had liabilities of $46.2 million due in one year and liabilities of $113.2 million due beyond. In compensation for these obligations, it had cash of US$205.2 million as well as receivables valued at US$24.5 million and maturing within 12 months. So he actually has 70.3 million US dollars After liquid assets than total liabilities.
This excess liquidity suggests that Aspen Aerogels is taking a cautious approach to debt. Given that he has easily sufficient short-term cash, we don’t think he will have any problems with his lenders. Simply put, the fact that Aspen Aerogels has more cash than debt is arguably a good indication that it can safely manage its debt. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether Aspen Aerogels can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Year-over-year, Aspen Aerogels reported revenue of $132 million, a 32% gain, although it reported no earnings before interest and taxes. With a little luck, the company will be able to progress towards profitability.
So how risky is Aspen Airgels?
We have no doubt that loss-making companies are, in general, more risky than profitable companies. And over the past year, Aspen Aerogels has posted a loss in earnings before interest and taxes (EBIT), if truth be told. And during the same period, it recorded a negative free cash outflow of US$66 million and recorded a book loss of US$50 million. But the saving grace is the US$104.5 million on the balance sheet. This pot means that the company can continue to spend on growth for at least two years, at current rates. Aspen Aerogels’ revenue growth has shone over the past year, so it may well be in a position to turn a profit in due course. By investing before these profits, shareholders take on more risk in the hope of greater rewards. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. We have identified 3 warning signs with Aspen Aerogels (at least 2 of which are a bit of a concern), and understanding them should be part of your investment process.
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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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.