We're Hopeful That Mobilicom (NASDAQ:MOB) Will Use Its Cash Wisely

Just because a business does not make any money, does not mean that the stock will go down. By way of example, Mobilicom (NASDAQ:MOB) has seen its share price rise 107% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether Mobilicom's cash burn is too risky. 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. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Mobilicom

Does Mobilicom Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2024, Mobilicom had cash of US$9.7m and no debt. Looking at the last year, the company burnt through US$3.1m. So it had a cash runway of about 3.1 years from June 2024. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Mobilicom Growing?

It was fairly positive to see that Mobilicom reduced its cash burn by 26% during the last year. But the operating revenue growth of 170% was even better. We think it is growing rather well, upon reflection. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Mobilicom is growing revenue over time by checking this visualization of past revenue growth.

Can Mobilicom Raise More Cash Easily?

We are certainly impressed with the progress Mobilicom 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. 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.

Since it has a market capitalisation of US$26m, Mobilicom's US$3.1m in cash burn equates to about 12% of its market value. 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 Mobilicom's Cash Burn?

As you can probably tell by now, we're not too worried about Mobilicom's cash burn. For example, we think its revenue growth suggests that the company is on a good path. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. 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. On another note, Mobilicom has 5 warning signs (and 1 which is a bit concerning) we think you should know about.

Of course Mobilicom 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 with high insider ownership.

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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.