We're Not Worried About SmartRent's (NYSE:SMRT) Cash Burn

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should SmartRent (NYSE:SMRT) shareholders 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for SmartRent

Does SmartRent Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When SmartRent last reported its balance sheet in September 2023, it had zero debt and cash worth US$211m. Importantly, its cash burn was US$4.0m over the trailing twelve months. That means it had a cash runway of very many years as of September 2023. Importantly, though, analysts think that SmartRent will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

How Well Is SmartRent Growing?

Given our focus on SmartRent's cash burn, we're delighted to see that it reduced its cash burn by a nifty 96%. Pleasingly, this was achieved with the help of a 34% boost to revenue. Considering these factors, we're fairly impressed by its 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.

Can SmartRent Raise More Cash Easily?

We are certainly impressed with the progress SmartRent 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 comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of US$658m, SmartRent's US$4.0m in cash burn equates to about 0.6% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is SmartRent's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about SmartRent's cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. But it's fair to say that its revenue growth was also very reassuring. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for SmartRent 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.

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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.