Is Boston Omaha (NYSE:BOC) a risky investment?
Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The greatest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. Above all, Boston Omaha Corporation (NYSE: BOC) is in debt. But should shareholders worry about its use of debt?
Why is debt risky?
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 frequent (but still costly) event is when a company has to issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, many companies use debt to finance their growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt together.
Check out our latest analysis for Boston Omaha
How much debt does Boston Omaha have?
You can click on the graph below for historical numbers, but it shows that in March 2022, Boston Omaha had $29.6 million in debt, an increase of $22.8 million, year over year. . However, his balance sheet shows he holds $174.7 million in cash, so he actually has $145.1 million in net cash.
How healthy is Boston Omaha’s record?
Zooming in on the latest balance sheet data, we can see that Boston Omaha had liabilities of US$39.0 million due within 12 months and liabilities of US$113.3 million due beyond. In compensation for these obligations, it had cash of US$174.7 million as well as receivables valued at US$5.22 million and maturing within 12 months. So he actually has $27.5 million After liquid assets than total liabilities.
This surplus suggests that Boston Omaha has a conservative balance sheet, and could probably eliminate its debt without much difficulty. In summary, Boston Omaha has clean cash, so it’s fair to say it’s not heavily leveraged! There is no doubt that we learn the most about debt from the balance sheet. But it’s future earnings, more than anything, that will determine Boston Omaha’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 earnings forecast report interesting.
Year-over-year, Boston Omaha reported revenue of $60 million, a 26% 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 Boston Omaha?
We have no doubt that loss-making companies are, in general, more risky than profitable companies. And last year, Boston Omaha posted a loss in earnings before interest and taxes (EBIT), if truth be told. Indeed, during this period, it burned $36 million in cash and suffered a loss of $15 million. With just $145.1 million on the balance sheet, it looks like it will soon have to raise capital again. With very solid revenue growth over the past year, Boston Omaha could be on the road to profitability. By investing before these profits, shareholders take on more risk in the hope of greater rewards. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. For example, we found 1 warning sign for Boston Omaha which you should be aware of before investing here.
In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.
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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.