Elastic Highlights Debt Challenges in Newly Added Risk Factors


This article was originally published on TipRanks.com

California-based Elastic (ESTC) is a search and analytics company. Its technology powers the systems of many organizations, including Verizon (VZ), Mayo Clinic, and NASA. Elastic has recently acquired Optimyze, CMD, and Build.Security to strengthen its solutions.

With this in mind, we used TipRanks to take a look at the latest financial performance and newly added risk factors for Elastic. (See Analysts’ Top Stocks on TipRanks)

Q2 Financial Results

Elastic reported revenue of $206 million for its Fiscal 2022 second-quarter ended October 31, surpassing the consensus estimate of $194.5 million. Revenue was $145 million in the same quarter last year. It posted an adjusted loss per share of $0.09, beating the consensus estimate of a $0.16 loss per share. Elastic ended Q2 with $876.1 million in cash and $566 million in long-term debt. (See Elastic stock charts on TipRanks).

Risk Factors

According to the new TipRanks Risk Factors tool, Elastic’s main risk category is Finance and Corporate, representing 39% of the total 74 risks identified for the stock. The company recently added four new Finance and Corporate risk factors.

Elastic informs investors that it has accumulated a substantial amount of debt. It cautions that dedicating a portion of cash flow to debt service payments could reduce the amount of cash available for working capital or acquisitions. Furthermore, Elastic warns that the existence of the debt could limit its ability to obtain future financing and make it more vulnerable to adverse economic conditions.

The company tells investors that it may be forced to sell some of its assets to raise funds to repay its debt if its operations cannot generate sufficient cash to meet debt service obligations. Additionally, it cautions that its credit rating may be downgraded if it misses a debt repayment.

Elastic warns that there are circumstances that may force it to seek bankruptcy protection in relation to the senior notes it has issued. It explains that if there is a change in control of the company, it may face an accelerated demand to repurchase its senior notes and pay the accrued interest. But it may not have sufficient funds to make the payments, which could lead to foreclosure proceedings against the company.

The Finance and Corporate risk factor’s sector average matches Elastic’s at 39%. Elastic’s stock has declined about 20% year-to-date.

Analysts’ Take

J.P. Morgan analyst Mark Murphy recently upgraded Elastic stock rating to a Buy with a price target of $156. Murphy’s price target suggests 33.50% upside potential.

Consensus among analysts is a Strong Buy based on 9 Buys and 2 Holds. The average Elastic price target of $185.82 implies 59.02% upside potential to current levels.

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