Yahoo Finance All You Need To Know About Sanderson Farms, Inc.’s (NASDAQ:SAFM) Financial Health
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Mid-caps stocks, like Sanderson Farms, Inc. (NASDAQ:SAFM) with a market capitalization of US$2.7b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at SAFM’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into SAFM here.
Check out our latest analysis for Sanderson Farms
Can SAFM 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. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Sanderson Farms, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with SAFM, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can SAFM pay its short-term liabilities?
Since Sanderson Farms doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term 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. With current liabilities at US$199m, it seems that the business has been able to meet these commitments with a current assets level of US$566m, leading to a 2.85x current account ratio. Generally, for Food companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Next Steps:
SAFM has zero-debt in addition to ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, however, some degree of debt may also ramp up earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how SAFM has performed in the past. I recommend you continue to research Sanderson Farms to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SAFM’s future growth? Take a look at our free research report of analyst consensus for SAFM’s outlook.
Valuation: What is SAFM worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SAFM is currently mispriced by the market.
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.
