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You Might Like Oasis Petroleum Inc. (NYSE:OAS) But Do You Like Its Debt?

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While small-cap stocks, such as Oasis Petroleum Inc. (NYSE:OAS) with its market cap of US$1.7b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that OAS is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, this is just a partial view of the stock, and I recommend you dig deeper yourself into OAS here.

OAS’s Debt (And Cash Flows)

OAS has sustained its debt level by about US$2.8b over the last 12 months including long-term debt. At this current level of debt, OAS currently has US$15m remaining in cash and short-term investments to keep the business going. On top of this, OAS has generated US$943m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 33%, indicating that OAS’s current level of operating cash is high enough to cover debt.

Does OAS’s liquid assets cover its short-term commitments?

With current liabilities at US$669m, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$522m, with a current ratio of 0.78x. The current ratio is the number you get when you divide current assets by current liabilities.

NYSE:OAS Historical Debt, July 11th 2019
NYSE:OAS Historical Debt, July 11th 2019

Is OAS’s debt level acceptable?

With a debt-to-equity ratio of 73%, OAS can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since OAS is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

Although OAS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven't considered other factors such as how OAS has been performing in the past. I recommend you continue to research Oasis Petroleum to get a better picture of the stock by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for OAS’s future growth? Take a look at our free research report of analyst consensus for OAS’s outlook.

  2. Valuation: What is OAS 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 OAS is currently mispriced by the market.

  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.