eXp World Holdings (NASDAQ:EXPI) Has A Rock Solid Balance Sheet

Dated: April 30 2021

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eXp World Holdings (NASDAQ:EXPI) Has A Rock Solid Balance Sheet

CONTRIBUTOR

Simply Wall St

First published on NASDAQ.COM

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that eXp World Holdings, Inc. (NASDAQ:EXPI) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does eXp World Holdings Carry?

The image below, which you can click on for greater detail, shows that at December 2020 eXp World Holdings had debt of US$4.29m, up from US$2.45m in one year. But it also has US$100.1m in cash to offset that, meaning it has US$95.9m net cash.

debt-equity-history-analysis

NasdaqGM: EXPI Debt to Equity History April 16th 2021

How Strong Is eXp World Holdings' Balance Sheet?

According to the last reported balance sheet, eXp World Holdings had liabilities of US$96.7m due within 12 months, and liabilities of US$2.95m due beyond 12 months. On the other hand, it had cash of US$100.1m and US$77.0m worth of receivables due within a year. So it actually has US$77.5m more liquid assets than total liabilities.

This state of affairs indicates that eXp World Holdings' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$5.25b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, eXp World Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Although eXp World Holdings made a loss at the EBIT level, last year, it was also good to see that it generated US$32m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine eXp World Holdings's ability to maintain a healthy balance sheet going forward..

Finally, a company can only pay off debt with cold hard cash, not accounting profits. eXp World Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, eXp World Holdings actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that eXp World Holdings has net cash of US$95.9m, as well as more liquid assets than liabilities. The cherry on top was that in converted 358% of that EBIT to free cash flow, bringing in US$113m. So is eXp World Holdings's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for eXp World Holdings you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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. 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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of buysellhomesatlanta, eXp Realty, EXP World Holdings or Nasdaq, Inc.

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Rob Dietrich

Whether you are buying, selling, building your dream home or finding your next investment property, you have a lot riding on the performance of your Real Estate professional. Since market conditions c....

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