We're Interested To See How Uni-Bio Science Group (HKG:690) Uses Its Cash Hoard To Grow

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

Given this risk, we thought we'd take a look at whether Uni-Bio Science Group (HKG:690) shareholders should 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Uni-Bio Science Group

How Long Is Uni-Bio Science Group's 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. Uni-Bio Science Group has such a small amount of debt that we'll set it aside, and focus on the HK$73m in cash it held at June 2020. In the last year, its cash burn was HK$15m. Therefore, from June 2020 it had 4.9 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Uni-Bio Science Group Growing?

Uni-Bio Science Group managed to reduce its cash burn by 73% over the last twelve months, which suggests it's on the right flight path. And while hardly exciting, it was still good to see revenue growth of 3.8% during that time. It seems to be growing nicely. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Uni-Bio Science Group is building its business over time.

How Hard Would It Be For Uni-Bio Science Group To Raise More Cash For Growth?

There's no doubt Uni-Bio Science Group seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Uni-Bio Science Group has a market capitalisation of HK$735m and burnt through HK$15m last year, which is 2.0% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Uni-Bio Science Group's Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Uni-Bio Science Group is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. On this analysis its revenue growth was its weakest feature, but we are not concerned about it. 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 1 warning sign for Uni-Bio Science Group that you should be aware of before investing.

Of course Uni-Bio Science Group 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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