Is Augwind Energy Tech Storage (TLV:AUGN) In A Good 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.

Given this risk, we thought we'd take a look at whether Augwind Energy Tech Storage (TLV:AUGN) shareholders should 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. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Augwind Energy Tech Storage

Does Augwind Energy Tech Storage 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. As at December 2022, Augwind Energy Tech Storage had cash of ₪88m and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was ₪50m over the trailing twelve months. So it had a cash runway of approximately 21 months from December 2022. 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.

How Is Augwind Energy Tech Storage's Cash Burn Changing Over Time?

In our view, Augwind Energy Tech Storage doesn't yet produce significant amounts of operating revenue, since it reported just ₪4.3m in the last twelve months. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. With the cash burn rate up 6.3% in the last year, it seems that the company is ratcheting up investment in the business over time. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. In reality, this article only makes a short study of the company's growth data. This graph of historic revenue growth shows how Augwind Energy Tech Storage is building its business over time.

How Easily Can Augwind Energy Tech Storage Raise Cash?

While its cash burn is only increasing slightly, Augwind Energy Tech Storage shareholders should still consider the potential need for further cash, down the track. 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 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.

Augwind Energy Tech Storage has a market capitalisation of ₪79m and burnt through ₪50m last year, which is 63% of the company's market value. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.

How Risky Is Augwind Energy Tech Storage's Cash Burn Situation?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Augwind Energy Tech Storage's cash runway was relatively promising. Summing up, we think the Augwind Energy Tech Storage's cash burn is a risk, based on the factors we mentioned in this article. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Augwind Energy Tech Storage (of which 2 are significant!) you should know about.

Of course Augwind Energy Tech Storage 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. 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.