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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Ping An Healthcare and Technology (HKG:1833) shareholders be worried about its cash burn? 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Our analysis indicates that 1833 is potentially undervalued!

When Might Ping An Healthcare and Technology Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Ping An Healthcare and Technology last reported its balance sheet in June 2022, it had zero debt and cash worth CN¥10b. Looking at the last year, the company burnt through CN¥1.2b. So it had a cash runway of about 8.5 years from June 2022. Importantly, though, analysts think that Ping An Healthcare and Technology will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Ping An Healthcare and Technology Growing?

Some investors might find it troubling that Ping An Healthcare and Technology is actually increasing its cash burn, which is up 8.2% in the last year. And we must say we find it concerning that operating revenue dropped 20% over the same period. Considering both these metrics, we're a little concerned about how the company is developing. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Ping An Healthcare and Technology Raise More Cash Easily?

Ping An Healthcare and Technology seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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 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.

Ping An Healthcare and Technology's cash burn of CN¥1.2b is about 8.7% of its CN¥14b market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

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

On this analysis of Ping An Healthcare and Technology's cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Ping An Healthcare and Technology that investors should know when investing in the stock.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.