We Think Artroniq Berhad (KLSE:ARTRONIQ) 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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Artroniq Berhad (KLSE:ARTRONIQ) 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Artroniq Berhad

How Long Is Artroniq Berhad's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2021, Artroniq Berhad had RM7.6m in cash, and was debt-free. Looking at the last year, the company burnt through RM14m. So it had a cash runway of approximately 7 months from September 2021. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. 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. Notably, its strong revenue growth of 85% over the last year is genuinely cause for optimism. Of course, we've only taken a quick look at the stock's growth metrics, here. 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?

While Artroniq Berhad's revenue growth truly does shine bright, it's important not to ignore the possibility that it might need more cash, at some point, even if only to optimise its growth plans. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of RM166m, Artroniq Berhad's RM14m in cash burn equates to about 8.4% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

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

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Artroniq Berhad's revenue growth was relatively promising. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Taking a deeper dive, we've spotted 4 warning signs for Artroniq Berhad you should be aware of, and 2 of them are a bit concerning.

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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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.