Viavi Solutions Inc (NASDAQ:VIAV) is one company that is attracting mixed reactions from the financial markets. As much as the firm depicts positive numbers in the growth and revenue sectors, it is still struggling with return. The return on equity and return on assets metrics are not quite as convincing.
Viavi Solutions financial health
Investors are always concerned with various aspects of companies like their ability to stay afloat in the face of debt. The company’s Q1 fiscal 2019 results are nothing but a glowing tribute to the company’s strong performance the past year.
In the 12 months past, the company slashed its total debt to $733 million from $830 million posted last year. Particularly, the values include both short-term and long-term debts the firm has incurred over the given period.
Meanwhile, the firm maintains cash reserves of $652 million. As such, the company can comfortably cover short-term commitments like investments.
Further, the operating cash the company generated is in the region of $83 million. However, this only gives operating cash to debt ratio of 11% which is somehow worrisome.
Basically, the small ratio depicts a company that is not generating enough operating cash relative to debt. Further, the ratio is indicative of a highly leveraged company which is raking in more debts that revenue.
Viavi Solutions is currently trading at 10.21 a share. However, a little technical analysis of the stock price indicates an overvalued situation.
In the Q1 results, the company posted a GAAP operating margin of (0.4) % year-over-year. This casts some doubt on the future cash flow. Based on the latest financials, the expected future cash flow is low. As such, the future cash flow price of the company’s stock is in the region of 4.64. Comparing this to the reigning stock price indicates an overvalued stock price.
Further, the 50-day moving average for the share indicates resistance at 10.46. The difference with the current stock price is very narrow. As such, the company is unlikely to experience much demand for the stock in the coming days. Interestingly, the MA (200) also concurs with the assessment, placing a resistance price of 11.09.
Based on the expected performance of the stock price, VIAV’s future outlook is not all that rosy. However, it is imperative to note that moving averages are not conclusive. It is possible for the price to break above the resistance sooner than anyone could expect.
At the moment, VIAV is loss making. Particularly, the company’s debt responsibilities exceed equity. Oleg Khaykin, VIAVI’s President and Chief Executive Officer explained that the situation arises from weak spending by key customers.
“We delivered solid results in fiscal Q1 2019, driven by better than expected demand in our key growth areas of Fiber, 5G wireless, and 3D Sensing. However, our strong performance in Fiber, 5G wireless and 3D Sensing was dampened by the continuing weak spending by the North American service providers,” said Khaykin.
The communications industry is on the upward trend. Regarding the company’s earnings per share (EPS) index, the firm is showing great promise. With regard to the last earnings report, the company’s GAAP EPS is $(0.07) which is decline on the year-to-year basis. Interestingly, the non-GAAP EPS is $0.15. This is a very important metric since it indicates that the company will dominate others in future.
Further, the company expects stronger revenue stream especially from the Network & Service Enablement segment. The goo performance will ride on the back of “richer product mix and operating expense management.”