Here's Why We're Watching Bidstack Group's (LON:BIDS) Cash Burn Situation
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
Given this risk, we thought we'd take a look at whether Bidstack Group (LON:BIDS) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for Bidstack Group
When Might Bidstack Group Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2022, Bidstack Group had UK£3.7m in cash, and was debt-free. Importantly, its cash burn was UK£7.1m over the trailing twelve months. That means it had a cash runway of around 6 months as of June 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. However, if we extrapolate the company's recent cash burn trend, then it would have a longer cash run way. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Bidstack Group Growing?
At first glance it's a bit worrying to see that Bidstack Group actually boosted its cash burn by 36%, year on year. But looking on the bright side, its revenue gained by 72%, lending some credence to the growth narrative. Of course, with spend going up shareholders will want to see fast growth continue. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Hard Would It Be For Bidstack Group To Raise More Cash For Growth?
Since Bidstack Group has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Bidstack Group's cash burn of UK£7.1m is about 15% of its UK£48m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.
How Risky Is Bidstack Group's Cash Burn Situation?
On this analysis of Bidstack Group's cash burn, we think its revenue growth was reassuring, while its cash runway has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Taking a deeper dive, we've spotted 6 warning signs for Bidstack Group you should be aware of, and 2 of them are potentially serious.
Of course Bidstack Group may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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