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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Amicus Therapeutics, Inc. (NASDAQ:FOLD) does carry debt. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
What Is Amicus Therapeutics's Net Debt?
The chart below, which you can click on for greater detail, shows that Amicus Therapeutics had US$387.9m in debt in December 2023; about the same as the year before. However, it also had US$286.2m in cash, and so its net debt is US$101.7m.
How Healthy Is Amicus Therapeutics' Balance Sheet?
According to the last reported balance sheet, Amicus Therapeutics had liabilities of US$167.7m due within 12 months, and liabilities of US$450.0m due beyond 12 months. Offsetting this, it had US$286.2m in cash and US$87.6m in receivables that were due within 12 months. So its liabilities total US$243.9m more than the combination of its cash and short-term receivables.
Since publicly traded Amicus Therapeutics shares are worth a total of US$3.48b, 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. 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 Amicus Therapeutics 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 Amicus Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to US$399m. With any luck the company will be able to grow its way to profitability.
Caveat Emptor
While we can certainly appreciate Amicus Therapeutics's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost US$73m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$77m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Amicus Therapeutics you should be aware of.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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