LifeStance Health Group (NASDAQ:LFST) uses its debt moderately

David Iben put it best when he said, “Volatility is not a risk we care about. We care about avoiding permanent loss of capital.” When we think about how risky a company is, we look at ourselves always include the use of debt, because over-indebtedness can lead to ruin. As with many other companies LifeStance Health Group, Inc. (NASDAQ:LFST) uses debt. But the real question is whether this debt makes the company risky.

When is debt dangerous?

Debt is a tool that helps companies grow. However, if a company is unable to repay its lenders, it is at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, it is more common (but still costly) for a company to have to issue shares at bargain prices, resulting in permanent shareholder dilution, just to shore up its balance sheet. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company’s use of debt, we first consider cash and debt together.

Check out our latest analysis for LifeStance Health Group

How much debt does LifeStance Health Group have?

You can click on the graphic below to see the historical numbers. However, it shows that LifeStance Health Group had $282.0 million in debt as of September 2024, up from $251.0 million in a year. However, this compares to US$103.7m in cash, leading to net debt of around US$178.3m.

How healthy is LifeStance Health Group’s balance sheet?

The most recent balance sheet shows that LifeStance Health Group had liabilities of US$217.5m due within a year, and liabilities of US$453.3m due beyond that were due. On the other hand, it had cash of US$103.7m and US$158.2m worth of receivables due within a year. So it has liabilities totaling US$409.0m more than its cash and short-term receivables combined.

Given LifeStance Health Group’s market capitalization of US$2.85 billion, it’s hard to believe that these liabilities pose much of a threat. Still, it’s clear that we should continue to monitor its balance sheet to ensure it doesn’t get worse. The balance sheet is clearly the area you should focus on when analyzing debt. However, the company’s future profitability will ultimately determine whether LifeStance Health Group can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Last year, LifeStance Health Group wasn’t profitable at the EBIT level, but it managed to grow its revenue by 20% to $1.2 billion. With a bit of luck, the company will be able to grow into profitability.

Precautionary measure

Even though LifeStance Health Group has managed to grow its revenue quite cleverly, the cold, hard truth is that it is losing money on its EBIT. In fact, the company lost $53 million at the EBIT level. If we look at this and remember the liabilities on the balance sheet relative to its cash, it seems unwise to us for the company to have debt. We therefore consider the balance sheet to be somewhat strained, although not irreparable. For example, we don’t want a repeat of last year’s loss of $95 million. Therefore, we consider this stock to be quite risky. There is no doubt that the balance sheet is where we learn the most about debt. However, not all investment risks lie on the balance sheet – quite the opposite. For this purpose, you should be aware of this 1 warning sign We discovered it at LifeStance Health Group.

Ultimately, sometimes it’s easier to focus on companies that don’t even need debt. Readers can access a list of growth stocks with no net debt 100% freeat the moment.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as 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. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.