Stock Analysis

We Think CarParts.com (NASDAQ:PRTS) Can Easily Afford To Drive Business Growth

  •  Updated
NasdaqGS:PRTS
Source: Shutterstock

Just because a business does not make any money, does not mean that the stock will go down. By way of example, CarParts.com (NASDAQ:PRTS) has seen its share price rise 256% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky CarParts.com's cash burn is. 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 CarParts.com

Does CarParts.com 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. As at January 2021, CarParts.com had cash of US$36m and no debt. In the last year, its cash burn was US$29m. Therefore, from January 2021 it had roughly 15 months of cash runway. Importantly, analysts think that CarParts.com will reach cashflow breakeven in around 20 months. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
NasdaqGS:PRTS Debt to Equity History May 7th 2021

Is CarParts.com's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because CarParts.com actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Notably, its strong revenue growth of 58% over the last year is genuinely cause for optimism. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can CarParts.com Raise More Cash Easily?

While CarParts.com'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. 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 US$810m, CarParts.com's US$29m in cash burn equates to about 3.6% 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.

How Risky Is CarParts.com's Cash Burn Situation?

As you can probably tell by now, we're not too worried about CarParts.com's cash burn. For example, we think its revenue growth suggests that the company is on a good path. Its weak point is its cash runway, but even that wasn't too bad! There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we've identified 3 warning signs for CarParts.com that you should be aware of before investing.

Of course CarParts.com 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.

If you’re looking to trade CarParts.com, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether CarParts.com is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis