Will Hydrogène de France Société anonyme (EPA:HDF) Spend Its Cash Wisely?

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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Hydrogène de France Société anonyme (EPA:HDF) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Hydrogène de France Société anonyme

How Long Is Hydrogène de France Société anonyme's Cash Runway?

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. In December 2023, Hydrogène de France Société anonyme had €63m in cash, and was debt-free. Importantly, its cash burn was €24m over the trailing twelve months. So it had a cash runway of about 2.6 years from December 2023. 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 Well Is Hydrogène de France Société anonyme Growing?

It was quite stunning to see that Hydrogène de France Société anonyme increased its cash burn by 222% over the last year. While operating revenue was up over the same period, the 14% gain gives us scant comfort. Taken together, we think these growth metrics are a little worrying. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Hydrogène de France Société anonyme Raise Cash?

While Hydrogène de France Société anonyme seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster 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. 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).

Hydrogène de France Société anonyme has a market capitalisation of €105m and burnt through €24m last year, which is 23% of the company's market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

How Risky Is Hydrogène de France Société anonyme's Cash Burn Situation?

On this analysis of Hydrogène de France Société anonyme's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for Hydrogène de France Société anonyme that potential shareholders should take into account before putting money into a stock.

Of course Hydrogène de France Société anonyme 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.