We can easily understand why investors are attracted to unprofitable companies. For example, although Salesforce.com’s software-as-a-service business lost money over the years while it was increasing recurring income, if you held the stock since 2005, you would do very well. But despite its well-known success, investors should not ignore so many unprofitable companies that just spent all their money and collapsed.
So, a natural question for SHT Smart High-Tech (NGM:SHT B) shareholders is whether they should pay attention to its money burn rate. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; negative free cash flow. Let’s start with a business cash check, relative to its cash burn.
Check out our latest analysis for SHT Smart High-Tech
How Long Is SHT Smart High-Tech’s Cash Runway?
You can calculate a company’s cash base by dividing the amount of cash it has by the rate at which cash is disbursed. As of March 2022, SHT Smart High-Tech has kr39m cash and no debt. Last year, the money burned was kr18 million. So it has a cash runway of about 2.1 years from March 2022. Arguably, that’s a wise and reasonable runway length to have. Pictured below, you can see how his cash holdings have changed over time.
How Is SHT Smart High-Tech’s Cash Burn Changing Over Time?
While it’s great to see that SHT Smart High-Tech has started generating revenue from operations, last year it only made kr7.9 million, so we don’t think it’s generating significant revenue, at this point. As a result, we think it’s too early to focus on revenue growth, so we’ll limit ourselves to seeing how money spending changes over time. Its money burn has positively exploded in the past year, up 342%. With such growth in spending, its cash base will be shortened rapidly, as it simultaneously uses up its cash while increasing burn rates. SHT Smart High-Tech made us a little nervous due to the lack of substantial operating income. We prefer most of the stocks in this stock list that analysts expect to grow.
Can SHT Smart High-Tech Raise More Cash Easily?
While SHT Smart High-Tech does have a solid cash base, its cash-burning trajectory might make some shareholders think ahead to when the company may need to raise more cash. Companies can raise capital either through debt or equity. This may interest you : Netflix is giving ‘The Gray Man’ its own universe with a sequel and spin-off confirmed. One of the main advantages of publicly traded companies is that they can sell shares to investors to increase cash and fund growth. We can compare a company’s cash outlay with its market capitalization to find out how many new shares the company must issue to fund one year’s operations.
SHT Smart High-Tech has a market capitalization of kr222m and reached kr18m last year, which is 8.2% of the company’s market value. Given that the percentage is rather small, it may be very easy for the company to fund another year of growth by issuing some new shares to investors, or even by taking out a loan.
Is SHT Smart High-Tech’s Cash Burn A Worry?
Although the increase in cash burn made us a little nervous, we should mention that we think the SHT Smart High-Tech’s cash burn relative to its market cap is relatively promising. Money burning companies are always on the riskier side, but after considering all the factors discussed in this short article, we don’t worry too much about their money burning rates. On the same subject : Worthington says Lifestyle Communities are not eligible for redevelopment. On another note, we did an in-depth investigation of the company, and identified 3 warning signs for SHT Smart High-Tech (1 should not be ignored!) that you should know about before investing here.
Of course, you may find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of growth stocks (according to analyst estimates)
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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our article is not intended as financial advice. This does not constitute a recommendation to buy or sell any stock, and does not take into account your goals, or your financial situation. We aim to provide you with long-term focused analysis driven by fundamental data. Note that our analysis may not account for price-sensitive company announcements or recent qualitative material. Simply Wall St has no positions in any of the stocks mentioned.