Companies Like Safe-T Group (TLV:SFET) Are In A Position To Invest In Growth

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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Safe-T Group (TLV:SFET) shareholders is whether they should be concerned by its rate of cash burn. 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.

Check out our latest analysis for Safe-T Group

When Might Safe-T Group 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. In March 2021, Safe-T Group had US$22m in cash, and was debt-free. Importantly, its cash burn was US$6.8m over the trailing twelve months. That means it had a cash runway of about 3.2 years as of March 2021. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.

How Well Is Safe-T Group Growing?

Over the last year, Safe-T Group maintained its cash burn at a fairly steady level. That's not too bad, but its revenue growth of 30% was definitely a positive. On balance, we'd say the company is improving over time. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Safe-T Group is growing revenue over time by checking this visualization of past revenue growth.

How Easily Can Safe-T Group Raise Cash?

We are certainly impressed with the progress Safe-T Group has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Safe-T Group's cash burn of US$6.8m is about 17% of its US$40m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

How Risky Is Safe-T Group's Cash Burn Situation?

The good news is that in our view Safe-T Group's cash burn situation gives shareholders real reason for optimism. Not only was its revenue growth quite good, but its cash runway was a real positive. 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. Taking a deeper dive, we've spotted 2 warning signs for Safe-T Group you should be aware of, and 1 of them is significant.

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

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