Yahoo Finance We're Interested To See How Family Zone Cyber Safety (ASX:FZO) Uses Its Cash Hoard To Grow
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. By way of example, Family Zone Cyber Safety (ASX:FZO) has seen its share price rise 206% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So notwithstanding the buoyant share price, we think it's well worth asking whether Family Zone Cyber Safety's 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.
See our latest analysis for Family Zone Cyber Safety
When Might Family Zone Cyber Safety Run Out Of Money?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Family Zone Cyber Safety last reported its balance sheet in December 2020, it had zero debt and cash worth AU$26m. Importantly, its cash burn was AU$9.4m over the trailing twelve months. Therefore, from December 2020 it had 2.7 years of cash runway. Importantly, though, the one analyst we see covering the stock thinks that Family Zone Cyber Safety 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 Family Zone Cyber Safety Growing?
At first glance it's a bit worrying to see that Family Zone Cyber Safety actually boosted its cash burn by 3.7%, year on year. Having said that, it's revenue is up a very solid 61% in the last year, so there's plenty of reason to believe in the growth story. Of course, with spend going up shareholders will want to see fast growth continue. We think it is growing rather well, upon reflection. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Hard Would It Be For Family Zone Cyber Safety To Raise More Cash For Growth?
While Family Zone Cyber Safety seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. 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 AU$198m, Family Zone Cyber Safety's AU$9.4m in cash burn equates to about 4.8% of its market value. 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.
How Risky Is Family Zone Cyber Safety's Cash Burn Situation?
As you can probably tell by now, we're not too worried about Family Zone Cyber Safety's cash burn. For example, we think its revenue growth suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. One real positive is that at least one analyst is forecasting that the company will reach breakeven. 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. An in-depth examination of risks revealed 1 warning sign for Family Zone Cyber Safety that readers should think about before committing capital to this 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.
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.
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