We Think Betmakers Technology Group (ASX:BET) Can Easily Afford To Drive Business Growth

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. Indeed, Betmakers Technology Group (ASX:BET) stock is up 126% in the last year, providing strong gains for shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

In light of its strong share price run, we think now is a good time to investigate how risky Betmakers Technology Group's cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Betmakers Technology Group

When Might Betmakers Technology Group Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at June 2020, Betmakers Technology Group had cash of AU$32m and no debt. Importantly, its cash burn was AU$724k over the trailing twelve months. So it had a very long cash runway of many years from June 2020. Importantly, though, analysts think that Betmakers Technology Group will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Betmakers Technology Group Growing?

Betmakers Technology Group managed to reduce its cash burn by 77% over the last twelve months, which suggests it's on the right flight path. Pleasingly, this was achieved with the help of a 39% boost to revenue. Overall, we'd say its growth is rather impressive. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Betmakers Technology Group Raise More Cash Easily?

We are certainly impressed with the progress Betmakers Technology Group has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Since it has a market capitalisation of AU$527m, Betmakers Technology Group's AU$724k in cash burn equates to about 0.1% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Betmakers Technology Group's Cash Burn?

As you can probably tell by now, we're not too worried about Betmakers Technology Group's cash burn. For example, we think its cash runway suggests that the company is on a good path. But it's fair to say that its revenue growth was also very reassuring. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. An in-depth examination of risks revealed 2 warning signs for Betmakers Technology Group that readers should think about before committing capital to this stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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This article by Simply Wall St is general in nature. 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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