There's no doubt that money can be made by owning shares of unprofitable businesses. For example, Artroniq Berhad (KLSE:ARTRONIQ) shareholders have done very well over the last year, with the share price soaring by 245%. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
In light of its strong share price run, we think now is a good time to investigate how risky Artroniq Berhad's cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
How Long Is Artroniq Berhad's Cash Runway?
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 December 2020, Artroniq Berhad had RM7.2m in cash, and was debt-free. Importantly, its cash burn was RM2.5m over the trailing twelve months. So it had a cash runway of about 2.8 years from December 2020. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.
Is Artroniq Berhad's Revenue Growing?
Given that Artroniq 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 41% in the last twelve months. In reality, this article only makes a short study of the company's growth data. You can take a look at how Artroniq Berhad is growing revenue over time by checking this visualization of past revenue growth.
How Hard Would It Be For Artroniq Berhad To Raise More Cash For Growth?
Notwithstanding Artroniq Berhad's revenue growth, it is still important to consider how it could raise more money, if it needs to. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.
Artroniq Berhad has a market capitalisation of RM449m and burnt through RM2.5m last year, which is 0.6% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
How Risky Is Artroniq Berhad's Cash Burn Situation?
As you can probably tell by now, we're not too worried about Artroniq Berhad's cash burn. In particular, we think its cash burn relative to its market cap stands out as evidence that the company is well on top of its spending. But it's fair to say that its revenue growth was also very reassuring. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Artroniq Berhad (1 is a bit concerning!) that you should be aware of before investing here.
Of course Artroniq Berhad 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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Artroniq Berhad, an investment holding company, manufactures and sells polyethylene compounds for wire and cable insulation, and jacketing in Malaysia, Asia, the Middle East, the Americas, and internationally.
Flawless balance sheet with acceptable track record.