Digital learning services operator Skillsoft Corp. (SKIL) in Nashua, N.H., provides enterprise learning solutions and a library of authorized technology and developer curricula to improve learner engagement and retention. The company went public on June 11 via a SPAC acquisition. However, it filed for bankruptcy last year after the COVID-19 pandemic severely impacted demand for its services.

Shares of SKIL are down 9.2% over the past six months and 11.5% over the past year. The stock is currently trading 20.5% below its 52-week high of $11.75. Also, SKIL is trading lower than its 50-day and 200-day moving averages of $9.59 and $10, respectively, which indicates a downtrend.

Although its recent strategic acquisition of a digital coaching platform could drive its growth in the long term, the company’s heavy reliance on debt refinancing could lead to insufficient cash flow given its fragile financials. So, here is what we think could influence SKIL’s performance in the near term:

Acquisition of Pluma Can Increase Costs

In July, SKIL announced its acquisition of digital professional development and coaching platform Pluma, Inc. to expand its leadership development capabilities. The transaction includes an approximately $22 million cash payment. Although the acquisition could broaden SKIL’s  blended e-learning model and allow its clients to gain access to highly skilled coaches and their expertise, the acquisition-related expenses could  exhaust the company’s already weak cash balance.

Debt Refinancing

Also in July,  SKIL  completed debt refinancing to enhance its financial flexibility to keep the business afloat. Its new $480 million senior secured term loan B facility and existing cash on hand will be used to repay  existing term loan facilities. Although the new term loan carries a lower interest rate and extends the debt’s maturity to 2028, the substantial outstanding long-term debt could indicate SKIL’s  inability to meet financial obligations. This could make investors nervous about the stock’s prospects.

Unstable Financials

SKIL reported a $1.58 million loss from operations, representing a 425.1% increase  from its year-ago value in the first quarter, ended March 31, 2021. Also, its net change in cash came in at a negative $1.49 million for this period, compared to $223,754 million in the prior-year period. As of March 31, 2021, SKIL  did not have any cash equivalents. Moreover, the company’s free cash flow stood at a negative $1.68 million, while total debt stood at  $1.5 million over this period.

POWR Ratings Reflect Bleak Prospects

SKIL has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. SKIL has a C grade for Growth. This is in sync with the company’s bleak financials and growth potential.

In terms of Momentum Grade, the company has a C. Its negative price returns over the past year justify the grade.

In addition to the grades we’ve highlighted, one can check out additional SKIL ratings for Sentiment, Stability, Quality, and Value here.

Of the 33 stocks in the D-rated Outsourcing – Education Services industry, SKIL is ranked #31.

There are several top-rated stocks in the same industry. Click here to view them.

Bottom Line

SKIL is financially unstable and has been bleeding money. This, along with its high debt level, could lead to the stock to suffer  a pullback in the near term. So, we think it’s wise to avoid the stock now.

SKIL shares were unchanged in premarket trading Friday. Year-to-date, SKIL has declined -9.76%, versus a 19.95% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

More...