Australia markets open in 5 hours 9 minutes
  • ALL ORDS

    7,557.80
    -29.60 (-0.39%)
     
  • AUD/USD

    0.7130
    -0.0003 (-0.04%)
     
  • ASX 200

    7,235.90
    -20.10 (-0.28%)
     
  • OIL

    67.19
    +1.01 (+1.53%)
     
  • GOLD

    1,785.20
    +8.70 (+0.49%)
     
  • BTC-AUD

    82,033.52
    +979.10 (+1.21%)
     
  • CMC Crypto 200

    1,491.67
    +22.59 (+1.54%)
     

We Think Argent Minerals (ASX:ARD) Can Afford To Drive Business Growth

  • Oops!
    Something went wrong.
    Please try again later.
·4-min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

We can readily understand why investors are attracted to unprofitable companies. By way of example, Argent Minerals (ASX:ARD) has seen its share price rise 455% 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.

So notwithstanding the buoyant share price, we think it's well worth asking whether Argent Minerals' cash burn is too risky. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Argent Minerals

Does Argent Minerals Have A Long 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. As at December 2020, Argent Minerals had cash of AU$5.2m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through AU$2.0m. So it had a cash runway of about 2.6 years from December 2020. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
debt-equity-history-analysis

How Is Argent Minerals' Cash Burn Changing Over Time?

In our view, Argent Minerals doesn't yet produce significant amounts of operating revenue, since it reported just AU$632k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. With cash burn dropping by 5.4% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. Admittedly, we're a bit cautious of Argent Minerals due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

How Easily Can Argent Minerals Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Argent Minerals to raise more cash in the future. 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. 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.

Argent Minerals' cash burn of AU$2.0m is about 3.6% of its AU$55m 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 Argent Minerals' Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Argent Minerals' cash burn. In particular, we think its cash burn relative to its market cap stands out as evidence that the company is well on top of its spending. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. 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, Argent Minerals has 5 warning signs (and 2 which are a bit concerning) we think you should know about.

Of course Argent Minerals 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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting