Is LightInTheBox Holding (NYSE:LITB) In A Good Position To Invest In Growth?

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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.

Given this risk, we thought we'd take a look at whether LightInTheBox Holding (NYSE:LITB) 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). Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for LightInTheBox Holding

How Long Is LightInTheBox Holding's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2024, LightInTheBox Holding had cash of US$27m and no debt. Looking at the last year, the company burnt through US$22m. That means it had a cash runway of around 15 months as of March 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

Is LightInTheBox Holding's Revenue Growing?

Given that LightInTheBox Holding 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. As it happens, operating revenue has been pretty flat over the last year. In reality, this article only makes a short study of the company's growth data. You can take a look at how LightInTheBox Holding has developed its business over time by checking this visualization of its revenue and earnings history.

Can LightInTheBox Holding Raise More Cash Easily?

Given its problematic fall in revenue, LightInTheBox Holding shareholders should consider how the company could fund its growth, if it turns out it needs more cash. 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).

LightInTheBox Holding's cash burn of US$22m is about 29% of its US$76m market capitalisation. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

Is LightInTheBox Holding's Cash Burn A Worry?

On this analysis of LightInTheBox Holding's cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. 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. Separately, we looked at different risks affecting the company and spotted 4 warning signs for LightInTheBox Holding (of which 1 doesn't sit too well with us!) you should know about.

Of course LightInTheBox Holding 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.

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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.

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