Here's Why We're Not Too Worried About AT Systematization Berhad's (KLSE:AT) Cash Burn Situation

Just because a business does not make any money, does not mean that the stock will go down. By way of example, AT Systematization Berhad (KLSE:AT) has seen its share price rise 138% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given its strong share price performance, we think it's worthwhile for AT Systematization Berhad shareholders to consider whether its cash burn is concerning. 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for AT Systematization Berhad

When Might AT Systematization Berhad Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. AT Systematization Berhad has such a small amount of debt that we'll set it aside, and focus on the RM211m in cash it held at December 2020. Importantly, its cash burn was RM88m over the trailing twelve months. Therefore, from December 2020 it had 2.4 years of cash runway. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

Is AT Systematization Berhad's Revenue Growing?

Given that AT Systematization Berhad actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. We think that it's fairly positive to see that revenue grew 23% in the last twelve months. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how AT Systematization Berhad has developed its business over time by checking this visualization of its revenue and earnings history.

How Easily Can AT Systematization Berhad Raise Cash?

While AT Systematization Berhad is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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. 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.

Since it has a market capitalisation of RM402m, AT Systematization Berhad's RM88m in cash burn equates to about 22% of its market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

So, Should We Worry About AT Systematization Berhad's Cash Burn?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought AT Systematization Berhad's 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. Taking a deeper dive, we've spotted 4 warning signs for AT Systematization Berhad you should be aware of, and 2 of them make us uncomfortable.

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. 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.
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