Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We notice that Wix.com Ltd. (NASDAQ: WIX) has debt on its balance sheet. But the most important question is: what risk does this debt create?
When is Debt a Problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we look at debt levels, we first look at cash and debt levels, together.
Check out our latest analysis for Wix.com
What is Wix.com’s debt?
As you can see below, at the end of September 2021, Wix.com was in debt of $ 921.7 million, up from $ 824.2 million a year ago. Click on the image for more details. But on the other hand, it also has $ 1.25 billion in cash, which leads to a net cash position of $ 324.0 million.
A look at the responsibilities of Wix.com
We can see from the most recent balance sheet that Wix.com had liabilities of US $ 720.4 million maturing within one year and liabilities of US $ 1.14 billion maturing within one year. of the. In compensation for these obligations, he had cash of US $ 1.25 billion as well as receivables valued at US $ 28.0 million maturing within 12 months. Its liabilities therefore total US $ 585.8 million more than the combination of its cash and short-term receivables.
Of course, Wix.com has a market cap of $ 9.28 billion, so those liabilities are likely manageable. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. While it has some liabilities to note, Wix.com also has more cash than debt, so we’re pretty confident it can handle its debt safely. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Wix.com’s ability to maintain a healthy balance sheet going forward. So, if you want to see what the professionals think, you might find this free Analyst Profit Forecast report interesting.
Year over year, Wix.com reported revenue of US $ 1.2 billion, a gain of 34%, although it reported no profit before interest and taxes. The shareholders are probably keeping their fingers crossed that this could generate a profit.
So how risky is Wix.com?
While Wix.com lost money on earnings before interest and taxes (EBIT), it actually generated positive free cash flow of US $ 44 million. So, although it is in deficit, it does not appear to have too much short-term balance sheet risk, given the net cash position. One bright spot is that Wix.com is growing its revenue at a steady rate, making it easier to sell a growth story and raise capital when needed. But we still think it’s a bit risky. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. These risks can be difficult to spot. Every business has them, and we’ve spotted 4 warning signs for Wix.com (1 of which cannot be ignored!) that you should know.
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
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