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Here's Why We're Not At All Concerned With Evolv Technologies Holdings' (NASDAQ:EVLV) Cash Burn Situation
Just because a business does not make any money, does not mean that the stock will go down. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given this risk, we thought we'd take a look at whether Evolv Technologies Holdings (NASDAQ:EVLV) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for Evolv Technologies Holdings
Does Evolv Technologies Holdings Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Evolv Technologies Holdings last reported its balance sheet in September 2023, it had zero debt and cash worth US$139m. Looking at the last year, the company burnt through US$71m. Therefore, from September 2023 it had 2.0 years of cash runway. Notably, analysts forecast that Evolv Technologies Holdings will break even (at a free cash flow level) in about 2 years. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. The image below shows how its cash balance has been changing over the last few years.
How Well Is Evolv Technologies Holdings Growing?
It was fairly positive to see that Evolv Technologies Holdings reduced its cash burn by 36% during the last year. Having said that, the revenue growth of 94% was considerably more inspiring. We think it is growing rather well, upon reflection. 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.
How Easily Can Evolv Technologies Holdings Raise Cash?
While Evolv Technologies Holdings seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.
Evolv Technologies Holdings' cash burn of US$71m is about 10% of its US$695m 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 Evolv Technologies Holdings' Cash Burn?
As you can probably tell by now, we're not too worried about Evolv Technologies Holdings' cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Evolv Technologies Holdings that potential shareholders should take into account before putting money into a stock.
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.
Valuation is complex, but we're here to simplify it.
Discover if Evolv Technologies Holdings might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About NasdaqCM:EVLV
Evolv Technologies Holdings
Develops, manufactures, markets, and sells security screening products and specific services in the United States and internationally.
Flawless balance sheet and slightly overvalued.
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