Gunpoint Exploration (CVE:GUN) Is In A Strong Position To Grow Its Business

Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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 Gunpoint Exploration (CVE:GUN) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Gunpoint Exploration

Does Gunpoint Exploration Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Gunpoint Exploration last reported its June 2024 balance sheet in July 2024, it had zero debt and cash worth CA$1.7m. In the last year, its cash burn was CA$674k. Therefore, from June 2024 it had 2.5 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.

How Is Gunpoint Exploration's Cash Burn Changing Over Time?

Because Gunpoint Exploration isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 53% over the last year suggests some degree of prudence. Admittedly, we're a bit cautious of Gunpoint Exploration due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can Gunpoint Exploration Raise More Cash Easily?

While we're comforted by the recent reduction evident from our analysis of Gunpoint Exploration's cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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 CA$33m, Gunpoint Exploration's CA$674k in cash burn equates to about 2.0% 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.

Is Gunpoint Exploration's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Gunpoint Exploration's cash burn. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. And even its cash burn reduction was very encouraging. Looking at all the measures in this article, together, we're not worried about its rate of cash burn, which seems to be under control. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Gunpoint Exploration (of which 3 are a bit unpleasant!) you should know about.

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. 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.