Stock Analysis

IQGeo Group (LON:IQG) Is In A Strong Position To Grow Its Business

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AIM:IQG
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We can readily understand why investors are attracted to unprofitable companies. 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, the natural question for IQGeo Group (LON:IQG) shareholders is whether they should be concerned by its rate of 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.

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How Long Is IQGeo Group's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2021, IQGeo Group had UK£12m in cash, and was debt-free. Importantly, its cash burn was UK£3.3m over the trailing twelve months. That means it had a cash runway of about 3.7 years as of June 2021. Importantly, though, the one analyst we see covering the stock thinks that IQGeo Group will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
AIM:IQG Debt to Equity History March 3rd 2022

How Well Is IQGeo Group Growing?

IQGeo Group reduced its cash burn by 11% during the last year, which points to some degree of discipline. On top of that, operating revenue was up 22%, making for a heartening combination Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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 IQGeo Group Raise More Cash Easily?

We are certainly impressed with the progress IQGeo Group has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund 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. 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.

IQGeo Group has a market capitalisation of UK£66m and burnt through UK£3.3m last year, which is 4.9% of the company's market value. 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.

How Risky Is IQGeo Group's Cash Burn Situation?

As you can probably tell by now, we're not too worried about IQGeo Group's cash burn. For example, we think its cash runway suggests that the company is on a good path. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. There's no doubt that shareholders can take a lot of heart from the fact that at least one analyst is forecasting it will reach breakeven before too long. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for IQGeo Group that investors should know when investing in the stock.

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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