Stock Analysis

We're Hopeful That Whispir (ASX:WSP) Will Use Its Cash Wisely

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ASX:WSP
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Just because a business does not make any money, does not mean that the stock will go down. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Whispir (ASX:WSP) shareholders is whether they should be concerned by its rate of 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'.

See our latest analysis for Whispir

Does Whispir Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2020, Whispir had AU$11m in cash, and was debt-free. Importantly, its cash burn was AU$8.1m over the trailing twelve months. That means it had a cash runway of around 17 months as of December 2020. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
ASX:WSP Debt to Equity History May 18th 2021

How Well Is Whispir Growing?

Whispir managed to reduce its cash burn by 55% over the last twelve months, which suggests it's on the right flight path. Pleasingly, this was achieved with the help of a 29% boost to revenue. It seems to be growing nicely. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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. Many companies end up issuing new shares to fund future 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.

Since it has a market capitalisation of AU$281m, Whispir's AU$8.1m 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 Whispir's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Whispir's cash burn. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. On this analysis its cash runway was its weakest feature, but we are not concerned about it. 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Whispir that potential shareholders should take into account before putting money into a stock.

Of course Whispir 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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