Companies Like Ping An Healthcare and Technology (HKG:1833) Are In A Position To Invest In Growth

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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Ping An Healthcare and Technology (HKG:1833) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Ping An Healthcare and Technology

How Long Is Ping An Healthcare and Technology's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2020, Ping An Healthcare and Technology had CN¥14b in cash, and was debt-free. In the last year, its cash burn was CN¥1.2b. That means it had a cash runway of very many years as of December 2020. Importantly, though, analysts think that Ping An Healthcare and Technology will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Ping An Healthcare and Technology Growing?

Ping An Healthcare and Technology actually ramped up its cash burn by a whopping 85% in the last year, which shows it is boosting investment in the business. But the silver lining is that operating revenue increased by 36% in that time. 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. 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 Ping An Healthcare and Technology Raise Cash?

While Ping An Healthcare and Technology 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. 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.

Ping An Healthcare and Technology's cash burn of CN¥1.2b is about 1.7% of its CN¥71b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is Ping An Healthcare and Technology's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Ping An Healthcare and Technology is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While we must concede that its increasing cash burn is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. One real positive is that analysts are forecasting that the company will reach breakeven. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking an in-depth view of risks, we've identified 3 warning signs for Ping An Healthcare and Technology that you should be aware of before investing.

Of course Ping An Healthcare and Technology 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. 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.
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