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This High Flying Stock Has No Cash

|Includes:Primo Water (PRMW)

Stocks continue to see favor among investors despite the risks involved with the markets currently. An article that I just read today states that real estate buyers that were driven to jumbo, interest-only mortgages due to their low down payments and interest, will begin to feel the pinch of their decisions due to the floating interest rate. "An estimated $934 billion in jumbo interest-only mortgages of all types were sold during the peak years of the housing boom, averaging about $234 billion a year, according to Inside Mortgage Finance" (Marketwatch). This is a very serious issue because as mortgage interest rates rise, interest-only mortgages will see their rates rise with the market. This means monthly payments are set to go higher for homeowners with this form of mortgage. Due to mortgage rates still being relatively within the range that it has been in now for a couple years, this is not yet an emergency, but down the road this could come back to haunt the economy. This is why investors cannot be overly risky with their portfolios, there is simply too much that could go wrong quickly.

The stock I will be taking a look at today is Primo Water Corporation (NASDAQ: PRMW). Primo Water "provides multi-gallon purified bottled water, self-service refill water, and water dispensers in the United States and Canada" (Finviz).

Turning to the fundamentals, Primo Water has a market cap of $109.67 million and is currently rated a 'buy' by analysts. The company is currently not profitable, but a forward price to earnings of 151 suggests profitability is within the next year. Price to sales is at 1.19, price to book is at 3.84, and price to cash is at 84. Total debt to equity stands at .78 and cash per share is at .05, giving the company an unstable current ratio of .90. Earnings are expected to rise 90.6 percent this year, 123 percent next year and 25 percent over the next five years. The stock is up a whopping 160 percent in the past year and up 72.24 percent year-to-date.

Investors that have been fortunate to ride the monster uptrend in Primo Water have seen some outstanding returns. Unfortunately, the underlying fundamentals do not support an uptrend. First, the company is not profitable. This is always a concern when you see high flying stocks with no earnings. Next, Primo has essentially no cash and a monster debt load. This is going to be a major issue down the line if the company cannot start generating cash to pay its obligations. The bottom line is that Primo Water has had a great run, but the underlying fundamentals will likely halt another major leg up.

Investors be sure to do your own research before investing.

Stocks: PRMW