We're Hopeful That Artini Holdings (HKG:789) Will Use Its Cash Wisely

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, Artini Holdings (HKG:789) shareholders have done very well over the last year, with the share price soaring by 249%. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So notwithstanding the buoyant share price, we think it's well worth asking whether Artini Holdings' cash burn is too risky. 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.

View our latest analysis for Artini Holdings

Does Artini Holdings Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In March 2023, Artini Holdings had HK$19m in cash, and was debt-free. In the last year, its cash burn was HK$14m. That means it had a cash runway of around 16 months as of March 2023. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.

Is Artini Holdings' Revenue Growing?

Given that Artini Holdings actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. Unfortunately, the last year has been a disappointment, with operating revenue dropping 17% during the period. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Artini Holdings has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Artini Holdings To Raise More Cash For Growth?

Given its problematic fall in revenue, Artini Holdings shareholders should consider how the company could fund its growth, if it turns out it needs more cash. 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. 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).

Since it has a market capitalisation of HK$243m, Artini Holdings' HK$14m in cash burn equates to about 5.8% of its 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 Artini Holdings' Cash Burn Situation?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Artini Holdings' cash burn relative to its market cap was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Artini Holdings' situation. Taking a deeper dive, we've spotted 3 warning signs for Artini Holdings you should be aware of, and 2 of them make us uncomfortable.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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.