We're Not Worried About Airgain's (NASDAQ:AIRG) Cash Burn

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Airgain (NASDAQ:AIRG) shareholders be worried about its cash burn? 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Airgain

Does Airgain Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at March 2022, Airgain had cash of US$19m and no debt. Looking at the last year, the company burnt through US$3.9m. Therefore, from March 2022 it had 4.8 years of cash runway. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.

Is Airgain's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Airgain actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. While it's not that amazing, we still think that the 18% increase in revenue from operations was a positive. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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 Airgain Raise Cash?

While Airgain is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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. 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$78m, Airgain's US$3.9m in cash burn equates to about 5.0% 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.

Is Airgain's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Airgain's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. And even though its revenue growth wasn't quite as impressive, it was still a positive. 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 2 warning signs for Airgain that you should be aware of before investing.

Of course Airgain 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.

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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.