SinoSun Technology (SZSE:300333) Is In A Strong Position To Grow Its Business

We can readily understand why investors are attracted to unprofitable companies. For example, SinoSun Technology (SZSE:300333) shareholders have done very well over the last year, with the share price soaring by 142%. 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 SinoSun Technology 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 SinoSun Technology

Does SinoSun Technology Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2024, SinoSun Technology had cash of CN¥117m and no debt. In the last year, its cash burn was CN¥3.6m. So it had a very long cash runway of many years from September 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

How Well Is SinoSun Technology Growing?

Given our focus on SinoSun Technology's cash burn, we're delighted to see that it reduced its cash burn by a nifty 92%. And while hardly exciting, it was still good to see revenue growth of 4.2% during that time. We think it is growing rather well, upon reflection. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how SinoSun Technology is building its business over time.

Can SinoSun Technology Raise More Cash Easily?

There's no doubt SinoSun Technology seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.

SinoSun Technology's cash burn of CN¥3.6m is about 0.06% of its CN¥6.1b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About SinoSun Technology's Cash Burn?

As you can probably tell by now, we're not too worried about SinoSun Technology's cash burn. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. Its weak point is its revenue growth, but even that wasn't too bad! After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we've identified 2 warning signs for SinoSun Technology that you should be aware of before investing.

Of course SinoSun Technology 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.