Has Allakos Inc (NASDAQ:ALLK) Got Enough Cash?
Stocks with market capitalization between $2B and $10B, such as Allakos Inc (NASDAQ:ALLK) with a size of US$2.3b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at ALLK’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into ALLK here.
Check out our latest analysis for Allakos
Can ALLK service its debt comfortably?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that Allakos has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with ALLK, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can ALLK pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Allakos has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. At the current liabilities level of US$8.1m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 24.42x. However, many consider a ratio above 3x to be high.
Next Steps:
ALLK has zero-debt as well as ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and shareholders, though, some degree of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how ALLK has performed in the past. I recommend you continue to research Allakos to get a better picture of the stock by looking at:
Historical Performance: What has ALLK’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
