We Think Hastings Technology Metals (ASX:HAS) Can Easily Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Hastings Technology Metals (ASX:HAS) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Hastings Technology Metals

When Might Hastings Technology Metals 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. When Hastings Technology Metals last reported its balance sheet in December 2021, it had zero debt and cash worth AU$96m. In the last year, its cash burn was AU$15m. That means it had a cash runway of about 6.6 years as of December 2021. Importantly, though, the one analyst we see covering the stock thinks that Hastings Technology Metals will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

How Is Hastings Technology Metals' Cash Burn Changing Over Time?

Hastings Technology Metals didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Over the last year its cash burn actually increased by 33%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. 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 Hastings Technology Metals To Raise More Cash For Growth?

While Hastings Technology Metals does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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$504m, Hastings Technology Metals' AU$15m in cash burn equates to about 2.9% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Hastings Technology Metals' Cash Burn Situation?

As you can probably tell by now, we're not too worried about Hastings Technology Metals' cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Shareholders can take heart from the fact that at least one analyst is forecasting it will reach breakeven. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Hastings Technology Metals (2 are significant!) that you should be aware of before investing here.

Of course Hastings Technology Metals 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.