Stock Analysis

Here's Why We're Not Too Worried About Whispir's (ASX:WSP) Cash Burn Situation

  •  Updated
ASX:WSP
Source: Shutterstock

There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Whispir (ASX:WSP) has seen its share price rise 176% over the last year, delighting many shareholders. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given its strong share price performance, we think it's worthwhile for Whispir shareholders to consider whether its cash burn is concerning. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Whispir

How Long Is Whispir's Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In June 2020, Whispir had AU$16m in cash, and was debt-free. Importantly, its cash burn was AU$11m over the trailing twelve months. That means it had a cash runway of around 17 months as of June 2020. Importantly, analysts think that Whispir will reach cashflow breakeven in 3 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
ASX:WSP Debt to Equity History February 9th 2021

How Well Is Whispir Growing?

It was fairly positive to see that Whispir reduced its cash burn by 30% during the last year. On top of that, operating revenue was up 26%, making for a heartening combination It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Whispir Raise Cash?

Even though it seems like Whispir is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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 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).

Whispir has a market capitalisation of AU$411m and burnt through AU$11m last year, which is 2.8% of the company's 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 Whispir's Cash Burn Situation?

The good news is that in our view Whispir's cash burn situation gives shareholders real reason for optimism. Not only was its revenue growth quite good, but its cash burn relative to its market cap was a real positive. One real positive is that analysts are forecasting that the company will reach breakeven. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Notably, our data indicates that Whispir insiders have been trading the shares. You can discover if they are buyers or sellers by clicking on this link.

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)

When trading Whispir or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


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

Find out whether Whispir 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.

View the Free Analysis