We're Hopeful That China Netcom Technology Holdings (HKG:8071) Will Use Its Cash Wisely

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. Indeed, China Netcom Technology Holdings (HKG:8071) stock is up 133% in the last year, providing strong gains for shareholders. 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.

Given its strong share price performance, we think it's worthwhile for China Netcom Technology Holdings shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

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How Long Is China Netcom Technology Holdings' 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 December 2024, China Netcom Technology Holdings had HK$15m in cash, and was debt-free. Looking at the last year, the company burnt through HK$9.0m. So it had a cash runway of approximately 20 months from December 2024. 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. Depicted below, you can see how its cash holdings have changed over time.

Check out our latest analysis for China Netcom Technology Holdings

How Well Is China Netcom Technology Holdings Growing?

On balance, we think it's mildly positive that China Netcom Technology Holdings trimmed its cash burn by 6.0% over the last twelve months. Having said that, the revenue growth of 66% was considerably more inspiring. 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 revenue growth shows how China Netcom Technology Holdings is building its business over time.

Can China Netcom Technology Holdings Raise More Cash Easily?

While China Netcom Technology Holdings seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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).

China Netcom Technology Holdings has a market capitalisation of HK$164m and burnt through HK$9.0m last year, which is 5.5% 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 China Netcom Technology Holdings' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way China Netcom Technology Holdings is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for China Netcom Technology Holdings that potential shareholders should take into account before putting money into a stock.

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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.