Stock Analysis

We Think Bit Digital (NASDAQ:BTBT) Needs To Drive Business Growth Carefully

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NasdaqCM:BTBT
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Just because a business does not make any money, does not mean that the stock will go down. For example, Bit Digital (NASDAQ:BTBT) shareholders have done very well over the last year, with the share price soaring by 113%. 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 its strong share price performance, we think it's worthwhile for Bit Digital shareholders to consider whether its cash burn is concerning. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; 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 Bit Digital

Does Bit Digital 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 2023, Bit Digital had US$21m in cash, and was debt-free. In the last year, its cash burn was US$31m. Therefore, from September 2023 it had roughly 8 months of cash runway. 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.

debt-equity-history-analysis
NasdaqCM:BTBT Debt to Equity History February 16th 2024

How Well Is Bit Digital Growing?

Bit Digital managed to reduce its cash burn by 63% over the last twelve months, which suggests it's on the right flight path. Unfortunately, however, operating revenue dropped 3.3% during the same time frame. On balance, we'd say the company is improving over time. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Bit Digital Raise More Cash Easily?

Since Bit Digital revenue has been falling, the market will likely be considering how it can raise more cash if need be. Companies can raise capital through either debt or equity. 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.

Bit Digital's cash burn of US$31m is about 10% of its US$305m 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.

So, Should We Worry About Bit Digital's Cash Burn?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Bit Digital's cash burn reduction was relatively promising. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Taking a deeper dive, we've spotted 4 warning signs for Bit Digital you should be aware of, and 1 of them doesn't sit too well with us.

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)

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

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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.