We can readily understand why investors are attracted to unprofitable companies. By way of example, Marathon Patent Group (NASDAQ:MARA) has seen its share price rise 306% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So notwithstanding the buoyant share price, we think it's well worth asking whether Marathon Patent Group'scash burn is too risky In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.
How Long Is Marathon Patent Group's 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. Marathon Patent Group has such a small amount of debt that we'll set it aside, and focus on the US$17m in cash it held at September 2020. In the last year, its cash burn was US$21m. Therefore, from September 2020 it had roughly 10 months of cash runway. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.
How Well Is Marathon Patent Group Growing?
It was quite stunning to see that Marathon Patent Group increased its cash burn by 563% over the last year. While that certainly gives us pause for thought, we take a lot of comfort in the strong annual revenue growth of 65%. In light of the data above, we're fairly sanguine about the business growth trajectory. 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.
How Easily Can Marathon Patent Group Raise Cash?
Since Marathon Patent Group has been boosting its cash burn, 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. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Marathon Patent Group's cash burn of US$21m is about 7.9% of its US$264m market capitalisation. 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.
Is Marathon Patent Group's Cash Burn A Worry?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Marathon Patent Group's revenue growth was relatively promising. 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. On another note, Marathon Patent Group has 4 warning signs (and 1 which can't be ignored) we think you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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What are the risks and opportunities for Marathon Digital Holdings?
Earnings are forecast to grow 98.97% per year
Highly volatile share price over the past 3 months
Shareholders have been diluted in the past year
Has less than 1 year of cash runway
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. 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.
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Marathon Digital Holdings
Marathon Digital Holdings, Inc. operates as a digital asset technology company that mines cryptocurrencies with a focus on the blockchain ecosystem and the generation of digital assets in United States.
High growth potential with imperfect balance sheet.