Primoris Services Corporation and Its Debt: The New York Perspective

So here we are. Talking about risk in the investment world, huh? Some folks equate risk with volatility, but Warren Buffett — yeah, the Oracle of Omaha — said it best: "Volatility is far from synonymous with risk." Therefore, when assessing any stock’s risk, we can’t ignore debt. Seriously, it’s like running up a huge credit card bill. Too much, and you’re sunk. This brings us to our topic: Primoris Services Corporation (NYSE:PRIM) and its use of debt. Is it manageable, or is it putting the company at risk?

Why Does Debt Bring Risk?

Debt is risky for any business, particularly when paying it down is tougher than a New York winter. If a company can’t handle its obligations with free cash flow or raise more capital at a good price, things get ugly. Worst case? Bankruptcy. More commonly, the company raises new equity capital at rock-bottom prices, diluting the shareholders.

But hey, not all is gloom and doom. Many companies juggle debt smartly. When we think about a company’s use of debt, first we look at cash and debt together.

View our latest analysis for Primoris Services.

What Is Primoris Services’ Net Debt?

Look, let’s get into the numbers. As of June 2024, Primoris Services had a debt load of $933.0 million. That’s down from $1.11 billion a year earlier. But wait — they also have $209.2 million in cash stashed away. So, net-net, their real debt is about $723.8 million.

How Healthy Is Primoris Services’ Balance Sheet?

Now, you gotta look at the latest balance sheet. Primoris Services had liabilities amounting to $1.48 billion due within a year and another $1.27 billion due after that. On the plus side, they’ve got $209.2 million in cash and $1.72 billion in receivables due within 12 months. So, quick math: Liabilities outweigh assets by $825.9 million. Yikes, that seems like a lot.

However, let’s not panic yet. The company’s market capitalization stands at $2.86 billion, which means it could raise capital if it really comes down to it. But, we’ve got to keep an eye on those debt levels.

Digging Deeper into Debt Metrics

We gauge a company’s debt load against its earnings power. Primoris’s net debt is a reasonable 1.8 times its EBITDA. And EBIT covered its interest expense just 3.8 times last year. While not alarming, it’s a sign that the cost of debt is eating into profits.

Here’s a juicy bit — Primoris Services’ EBIT grew by 26% in the last year. So, paying down debt should get easier over time.

Cash Is King

A company can’t pay off debt with accounting profits alone; they need cash. And here’s a red flag: Over the last three years, Primoris Services reported free cash flow worth only 5.9% of its EBIT. That weak cash conversion could make it tricky to manage and pay down debt.

Our View

When it comes to balance sheets, Primoris Services has some good and some not-so-good going on. The good news? It’s growing EBIT at a healthy rate. The not-so-great? Its cash conversion is mediocre, to put it kindly.

Looking at all this, we feel a bit cautious about Primoris Services’s debt levels. Debt can indeed boost returns on equity, but shareholders should keep an eagle eye on these debt levels.

The balance sheet isn’t the only place to look when analyzing investment risks. For instance, we found some [2 warning signs for Primoris Services](https://www.simplywall.st/stocks/us/capital-goods/nyse-prim/primoris-services#warning signs) you might want to consider.

New: Manage All Your Stock Portfolios in One Place

We’ve created the ultimate portfolio companion for stock investors, and it’s free.

• Connect unlimited portfolios and see your total in one currency.
• Be alerted to new warning signs or risks via email or mobile.
• Track the fair value of your stocks.

Try a Demo Portfolio for Free

Wrap-Up

If, after all this, you’re more interested in fast-growing companies with rock-solid balance sheets, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology, and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.