We Think ZOOZ Power (TLV:ZOOZ) Needs To Drive Business Growth Carefully

We can readily understand why investors are attracted to unprofitable companies. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for ZOOZ Power (TLV:ZOOZ) shareholders is whether they should be concerned by its rate of 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for ZOOZ Power

When Might ZOOZ Power Run Out Of Money?

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 June 2023, ZOOZ Power had ₪50m in cash, and was debt-free. Importantly, its cash burn was ₪44m over the trailing twelve months. So it had a cash runway of approximately 14 months from June 2023. 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. The image below shows how its cash balance has been changing over the last few years.

How Is ZOOZ Power's Cash Burn Changing Over Time?

Whilst it's great to see that ZOOZ Power has already begun generating revenue from operations, last year it only produced ₪2.8m, so we don't think it is generating significant revenue, at this point. 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. During the last twelve months, its cash burn actually ramped up 54%. While this spending increase is no doubt intended to drive growth, if the trend continues the company's cash runway will shrink very quickly. ZOOZ Power makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can ZOOZ Power Raise More Cash Easily?

Given its cash burn trajectory, ZOOZ Power shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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. 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.

ZOOZ Power's cash burn of ₪44m is about 50% of its ₪87m market capitalisation. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).

Is ZOOZ Power's Cash Burn A Worry?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought ZOOZ Power's cash runway was relatively promising. Summing up, we think the ZOOZ Power'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 6 warning signs for ZOOZ Power (of which 4 don't sit too well with us!) you should know about.

Of course ZOOZ Power 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.