We Think Razor Labs (TLV:RZR) Can Afford To Drive Business Growth

Just because a business does not make any money, does not mean that the stock will go down. By way of example, Razor Labs (TLV:RZR) has seen its share price rise 450% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky Razor Labs' cash burn is. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; 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 Razor Labs

Does Razor Labs 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 June 2023, Razor Labs had cash of ₪39m and no debt. Looking at the last year, the company burnt through ₪14m. So it had a cash runway of about 2.7 years from June 2023. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.

How Well Is Razor Labs Growing?

Happily, Razor Labs is travelling in the right direction when it comes to its cash burn, which is down 60% over the last year. But it's hard to delight in that cash burn reduction given the 52% collapse in revenue. In light of the data above, we're fairly sanguine about the business growth trajectory. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Razor Labs has developed its business over time by checking this visualization of its revenue and earnings history.

How Hard Would It Be For Razor Labs To Raise More Cash For Growth?

Even though it seems like Razor Labs is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. 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.

Razor Labs' cash burn of ₪14m is about 8.7% of its ₪165m 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.

So, Should We Worry About Razor Labs' Cash Burn?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Razor Labs' cash runway was relatively promising. 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. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Razor Labs (2 are potentially serious!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.