We Think CrowdStrike Holdings (NASDAQ:CRWD) Can Easily Afford To Drive Business Growth

Just because a business does not make any money, does not mean that the stock will go down. 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?

So should CrowdStrike Holdings (NASDAQ:CRWD) shareholders be worried about its cash burn? 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for CrowdStrike Holdings

Does CrowdStrike Holdings Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In October 2019, CrowdStrike Holdings had US$834m in cash, and was debt-free. In the last year, its cash burn was US$38m. So it had a very long cash runway of many years from October 2019. Importantly, though, analysts think that CrowdStrike Holdings will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is CrowdStrike Holdings Growing?

We reckon the fact that CrowdStrike Holdings managed to shrink its cash burn by 51% over the last year is rather encouraging. And arguably the operating revenue growth of 97% was even more impressive. Considering these factors, we're fairly impressed by its growth trajectory. 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 CrowdStrike Holdings Raise More Cash Easily?

We are certainly impressed with the progress CrowdStrike Holdings has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash to fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

CrowdStrike Holdings has a market capitalisation of US$12b and burnt through US$38m last year, which is 0.3% 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.

So, Should We Worry About CrowdStrike Holdings's Cash Burn?

As you can probably tell by now, we're not too worried about CrowdStrike Holdings's cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. But it's fair to say that its cash burn reduction was also very reassuring. 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. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Notably, our data indicates that CrowdStrike Holdings insiders have been trading the shares. You can discover if they are buyers or sellers by clicking on this link.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

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