Stock Analysis

We Think iTech Minerals (ASX:ITM) Can Easily Afford To Drive Business Growth

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ASX:ITM
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Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 iTech Minerals (ASX:ITM) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for iTech Minerals

How Long Is iTech Minerals' Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When iTech Minerals last reported its balance sheet in June 2021, it had zero debt and cash worth AU$580k. In the last year, its cash burn was AU$208k. That means it had a cash runway of about 2.8 years as of June 2021. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
ASX:ITM Debt to Equity History January 22nd 2022

How Hard Would It Be For iTech Minerals To Raise More Cash For Growth?

Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

iTech Minerals has a market capitalisation of AU$33m and burnt through AU$208k last year, which is 0.6% of the company's 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.

How Risky Is iTech Minerals' Cash Burn Situation?

Given it's an early stage company, we don't have a lot of data with which to judge iTech Minerals' cash burn. Certainly, we'd be more confident in the stock if it was generating operating revenue. Having said that, we can say that its cash burn relative to its market cap was a real positive. Summing up, its cash burn doesn't bother us and we're excited to see what kind of growth it can achieve with its current cash hoard. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for iTech Minerals (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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

Valuation is complex, but we're helping make it simple.

Find out whether iTech Minerals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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