Is Bidstack Group (LON:BIDS) In A Good Position To Invest In Growth?

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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. 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 Bidstack Group (LON:BIDS) 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. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Bidstack Group

Does Bidstack Group Have A Long 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. When Bidstack Group last reported its balance sheet in June 2022, it had zero debt and cash worth UK£3.7m. Importantly, its cash burn was UK£7.1m over the trailing twelve months. So it had a cash runway of approximately 6 months from June 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

How Well Is Bidstack Group Growing?

At first glance it's a bit worrying to see that Bidstack Group actually boosted its cash burn by 36%, year on year. But looking on the bright side, its revenue gained by 72%, lending some credence to the growth narrative. The company needs to keep up that growth, if it is to really please shareholders. 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.

Can Bidstack Group Raise More Cash Easily?

Given the trajectory of Bidstack Group's cash burn, many investors will already be thinking about how it might raise more cash in the future. 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).

Bidstack Group has a market capitalisation of UK£27m and burnt through UK£7.1m last year, which is 27% of the company's market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

Is Bidstack Group's Cash Burn A Worry?

On this analysis of Bidstack Group's cash burn, we think its revenue growth was reassuring, while its cash runway has us a bit worried. Summing up, we think the Bidstack Group's cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 8 warning signs for Bidstack Group you should be aware of, and 3 of them are a bit unpleasant.

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.