We're Not Worried About OrderYOYO's (CPH:YOYO) Cash Burn

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. 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 should OrderYOYO (CPH:YOYO) shareholders 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'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for OrderYOYO

When Might OrderYOYO Run Out Of Money?

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 OrderYOYO last reported its balance sheet in June 2023, it had zero debt and cash worth kr.53m. In the last year, its cash burn was kr.22m. That means it had a cash runway of about 2.4 years as of June 2023. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Well Is OrderYOYO Growing?

OrderYOYO managed to reduce its cash burn by 72% over the last twelve months, which suggests it's on the right flight path. And it is also great to see that the revenue is up a stonking 101% in the same time period. Overall, we'd say its growth is rather impressive. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how OrderYOYO is building its business over time.

How Easily Can OrderYOYO Raise Cash?

While OrderYOYO seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. 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. 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.

OrderYOYO's cash burn of kr.22m is about 3.3% of its kr.676m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

Is OrderYOYO's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about OrderYOYO's cash burn. For example, we think its revenue growth suggests that the company is on a good path. And even its cash runway was very encouraging. 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 a deeper dive, we've spotted 3 warning signs for OrderYOYO you should be aware of, and 1 of them is a bit unpleasant.

Of course OrderYOYO 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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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.