We're Interested To See How Tourism Enterprises (TADAWUL:4170) Uses Its Cash Hoard To Grow

We can readily understand why investors are attracted to unprofitable companies. Indeed, Tourism Enterprises (TADAWUL:4170) stock is up 249% in the last year, providing strong gains for shareholders. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So notwithstanding the buoyant share price, we think it's well worth asking whether Tourism Enterprises' cash burn is too risky. 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. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Tourism Enterprises

Does Tourism Enterprises Have A Long Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In September 2020, Tourism Enterprises had ر.س14m in cash, and was debt-free. Looking at the last year, the company burnt through ر.س383k. That means it had a cash runway of very many years as of September 2020. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.

How Well Is Tourism Enterprises Growing?

Tourism Enterprises managed to reduce its cash burn by 95% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. However, operating revenue growth was flat over the period. It seems to be growing nicely. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Tourism Enterprises has developed its business over time by checking this visualization of its revenue and earnings history.

Can Tourism Enterprises Raise More Cash Easily?

There's no doubt Tourism Enterprises 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. 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).

Tourism Enterprises has a market capitalisation of ر.س571m and burnt through ر.س383k last year, which is 0.07% 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.

Is Tourism Enterprises' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Tourism Enterprises is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. Its weak point is its revenue growth, but even that wasn't too bad! Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Tourism Enterprises (1 is a bit unpleasant!) 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 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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