Is LiveWire Group (NYSE:LVWR) In A Good Position To Invest In Growth?

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether LiveWire Group (NYSE:LVWR) shareholders should be worried about its 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for LiveWire Group

When Might LiveWire Group Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When LiveWire Group last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth US$88m. In the last year, its cash burn was US$109m. So it had a cash runway of approximately 10 months from September 2024. 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.

How Well Is LiveWire Group Growing?

At first glance it's a bit worrying to see that LiveWire Group actually boosted its cash burn by 12%, year on year. Also concerning, operating revenue was actually down by 3.7% in that time. Considering both these factors, we're not particularly excited by its growth profile. 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 LiveWire Group is building its business over time.

How Hard Would It Be For LiveWire Group To Raise More Cash For Growth?

Since LiveWire Group can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. 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.

LiveWire Group's cash burn of US$109m is about 15% of its US$720m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is LiveWire Group's Cash Burn A Worry?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought LiveWire Group's cash burn relative to its market cap was relatively promising. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. Taking a deeper dive, we've spotted 3 warning signs for LiveWire Group you should be aware of, and 2 of them shouldn't be ignored.

Of course LiveWire Group 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.