Here's Why We're Not Too Worried About 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. By way of example, Evolv Technologies Holdings (NASDAQ:EVLV) has seen its share price rise 116% over the last year, delighting many shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given its strong share price performance, we think it's worthwhile for Evolv Technologies Holdings shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for Evolv Technologies Holdings

How Long Is Evolv Technologies Holdings' 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. When Evolv Technologies Holdings last reported its balance sheet in March 2023, it had zero debt and cash worth US$181m. Importantly, its cash burn was US$80m over the trailing twelve months. Therefore, from March 2023 it had 2.3 years of cash runway. Arguably, that's a prudent and sensible length of runway to have. We should note, however, that if we extrapolate recent trends in its cash burn, then its cash runway would get a lot longer. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Evolv Technologies Holdings Growing?

On balance, we think it's mildly positive that Evolv Technologies Holdings trimmed its cash burn by 18% over the last twelve months. But it was the operating revenue growth of 132% that really shone. We think it is growing rather well, upon reflection. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For Evolv Technologies Holdings To Raise More Cash For Growth?

We are certainly impressed with the progress Evolv Technologies 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 and fund 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.

Evolv Technologies Holdings' cash burn of US$80m is about 9.0% of its US$882m 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 Evolv Technologies Holdings' Cash Burn A Worry?

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. Its weak point is its cash burn reduction, but even that wasn't too bad! Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Taking an in-depth view of risks, we've identified 3 warning signs for Evolv Technologies Holdings that you should be aware of before investing.

Of course Evolv Technologies Holdings 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.