Cybersecurity is a buzzword that is very much “in”, if you’d like. As a matter of fact, it has been for quite some time now. Tech has produced more stock market unicorns in the past 20 years than any other industry, and when you look at cybersecurity firms, their services are in demand. According to Statista, the revenue for the cybersecurity sector has grown from £5.7 billion to a staggering £8.9 billion since 2017. This rapid growth has caught my eye and I have been more than curious about finding a stock to invest in from this sector. This led me to studying Avast (LSE: AVST) shares.
The company seems to be fairly popular for those into computers and tech, and the financials seem to be quite interesting. The company’s price per share at the time I was writing this stood at 453p and the past year has been somewhat of a rollercoaster. The price peaked at 600p, but the pandemic hasn’t done anyone (except a few) any good, has it?
Fast forward, a year later since the first lockdown in the UK, there have been clear signs of recovery for Avast shares after the price plummeted to 420p in March 2021. But a dive into the company’s annual reports gives me an even better understanding of the company’s performance helping me find the answer to “should I invest in Avast or not?”
A good-looking financial position
When looking at the financial position of a company, the leverage (or put simple, its debt ratio) is a particularly important indicator. Generally, too much debt equals a bad financial position. But this isn’t always the case. If we put dilution away for a second, debt can be a great way to reduce tax liability and raise capital. That’s exactly what I did while researching Avast’s shares. I looked at its cash and debt together to draw a clearer picture.
Avast’s short-term liabilities stand at $623 million and long-term debt stands at $888.7 million. With the company’s receivables standing at $68.2 million and a cash balance of $175.7 million, it still is $1.27 billion short. Am I worried? Not yet. Avast has a total market cap of $6.80 billion, which puts any fatal risks due to liabilities out of question.
Zoom in a little more and you can figure out that the company uses its operating income minus non-cash expenses (i.e., depreciation and amortisation) or more technically known as EBITDA rather gracefully, with its net debt being 1.6x of the EBITDA. This plus the fact that earnings over the past two fiscal years have been rather consistent, with the company reducing its total liability over these years, point towards positive financial performance.
Avast hasn’t been shy of innovation either and with the demand for cybersecurity services on the rise, I most certainly expect its share price to rise further. This also depends on how effectively the company manages its cashflows in the coming years. Bear in mind, we are talking about generating liquid cash from profits to pay-off their debts and become less leveraged. This will certainly be a decisive factor in the coming years, but with the industry seeing growth and the company outperforming competitors in most departments, I like the look of Avast shares as one of my next investments.
