Companies Like Waja Konsortium Berhad (KLSE:WAJA) Are In A Position To Invest In Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 Waja Konsortium Berhad (KLSE:WAJA) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Our analysis indicates that WAJA is potentially overvalued!

How Long Is Waja Konsortium Berhad's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Waja Konsortium Berhad last reported its balance sheet in June 2022, it had zero debt and cash worth RM19m. Importantly, its cash burn was RM9.7m over the trailing twelve months. So it had a cash runway of about 2.0 years from June 2022. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. The image below shows how its cash balance has been changing over the last few years.

How Well Is Waja Konsortium Berhad Growing?

Waja Konsortium Berhad managed to reduce its cash burn by 65% over the last twelve months, which suggests it's on the right flight path. And revenue is up 28% in that same period; also a good sign. We think it is growing rather well, upon reflection. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Waja Konsortium Berhad is building its business over time.

How Easily Can Waja Konsortium Berhad Raise Cash?

There's no doubt Waja Konsortium Berhad seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Since it has a market capitalisation of RM113m, Waja Konsortium Berhad's RM9.7m in cash burn equates to about 8.5% of its market value. 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.

Is Waja Konsortium Berhad's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Waja Konsortium Berhad is burning through its cash. In particular, we think its cash burn reduction stands out as evidence that the company is well on top of its spending. And even though its cash runway wasn't quite as impressive, it was still a positive. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Waja Konsortium Berhad (1 can't be ignored!) 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 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.