We Think FingerMotion (NASDAQ:FNGR) Needs To Drive Business Growth Carefully

Just because a business does not make any money, does not mean that the stock will go down. Indeed, FingerMotion (NASDAQ:FNGR) stock is up 457% in the last year, providing strong gains for shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky FingerMotion's cash burn is. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for FingerMotion

Does FingerMotion Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When FingerMotion last reported its balance sheet in May 2023, it had zero debt and cash worth US$5.4m. Looking at the last year, the company burnt through US$11m. So it had a cash runway of approximately 6 months from May 2023. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

How Well Is FingerMotion Growing?

Notably, FingerMotion actually ramped up its cash burn very hard and fast in the last year, by 149%, signifying heavy investment in the business. While that isa little concerning at a glance, the company has a track record of recent growth, evidenced by the impressive 90% growth in revenue, over the very same year. On balance, we'd say the company is improving over time. 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.

How Hard Would It Be For FingerMotion To Raise More Cash For Growth?

Since FingerMotion has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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).

FingerMotion's cash burn of US$11m is about 4.1% of its US$267m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About FingerMotion's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought FingerMotion's revenue growth was relatively promising. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for FingerMotion (3 can't be ignored!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.