Investment Thesis
Element Solutions exhibits critical cash generation deficiencies and inadequate debt servicing capacity. Despite $840M in revenue with positive net income of $55.9M, the company generated negative operating cash flow of -$66.6M and negative free cash flow of -$91.7M, indicating severe earnings quality issues. An interest coverage ratio of 0.8x reveals the company cannot service debt obligations from operations, creating material financial stress.
Strengths
- Gross margin of 38.4% is respectable for specialty chemicals sector
- Operating margin of 13.3% demonstrates core business profitability at scale
- Strong liquidity with current ratio of 2.68x and quick ratio of 1.91x provides near-term flexibility
- Moderate leverage at 0.75x debt-to-equity avoids extreme financial risk
Risks
- Negative operating cash flow of -$66.6M and free cash flow of -$91.7M signal poor earnings quality and cash conversion
- Interest coverage of 0.8x indicates inability to service debt from operations, creating refinancing risk
- Return on equity of 2.0% and ROA of 1.0% reflect severe capital inefficiency despite large asset base
- EPS declined 21.8% YoY while net income was flat, suggesting operational deterioration and dilution
- Revenue growth of 4877% YoY lacks credibility as organic growth and suggests acquisition-driven results masking underlying business weakness
Key Metrics to Watch
- Operating cash flow trend and path to positive FCF generation
- Interest coverage ratio improvement and debt refinancing capacity
- Return on equity recovery and capital deployment efficiency
- Organic revenue growth excluding acquisition impacts and net income sustainability
Financial Metrics
Revenue
840.0M
Net Income
55.9M
EPS (Diluted)
$0.23
Free Cash Flow
-91.7M
Total Assets
5.7B
Cash
177.3M
Profitability Ratios
Gross Margin
38.4%
Operating Margin
13.3%
Net Margin
6.7%
ROE
2.0%
ROA
1.0%
FCF Margin
-10.9%
Balance Sheet & Liquidity
Current Ratio
2.68x
Quick Ratio
1.91x
Debt/Equity
0.75x
Debt/Assets
52.1%
Interest Coverage
0.76x
Long-term Debt
2.1B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T11:18:10.132077 |
Data as of: 2026-03-31 |
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