Yahoo Finance Here's Why We're Not At All Concerned With Hazer Group's (ASX:HZR) Cash Burn Situation
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for Hazer Group (ASX:HZR) shareholders is whether they should be concerned by its rate of 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 Hazer Group
When Might Hazer Group Run Out Of Money?
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. In December 2019, Hazer Group had AU$9.6m in cash, and was debt-free. In the last year, its cash burn was AU$3.1m. Therefore, from December 2019 it had 3.2 years of cash runway. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.
How Is Hazer Group's Cash Burn Changing Over Time?
In the last year, Hazer Group did book revenue of AU$1.6m, but its revenue from operations was less, at just AU$1.6m. We don't think that's enough operating revenue for us to understand too much from revenue growth rates, since the company is growing off a low base. So we'll focus on the cash burn, today. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 26% over the last year suggests some degree of prudence. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Hazer Group is growing revenue over time by checking this visualization of past revenue growth.
Can Hazer Group Raise More Cash Easily?
While Hazer Group is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash to drive 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).
Hazer Group's cash burn of AU$3.1m is about 5.7% of its AU$54m 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 Hazer Group's Cash Burn A Worry?
As you can probably tell by now, we're not too worried about Hazer Group's cash burn. In particular, we think its cash runway 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. 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, we conducted an in-depth investigation of the company, and identified 5 warning signs for Hazer Group (1 doesn't sit too well with us!) 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. 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. Thank you for reading.
