Yahoo Finance We're Interested To See How Rent.com.au (ASX:RNT) Uses Its Cash Hoard To Grow
There's no doubt that money can be made by owning shares of unprofitable businesses. Indeed, Rent.com.au (ASX:RNT) stock is up 683% in the last year, providing strong gains for shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given its strong share price performance, we think it's worthwhile for Rent.com.au shareholders to consider whether its cash burn is concerning. 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for Rent.com.au
Does Rent.com.au Have A Long Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at December 2020, Rent.com.au had cash of AU$1.8m and no debt. Importantly, its cash burn was AU$657k over the trailing twelve months. So it had a cash runway of about 2.8 years from December 2020. Importantly, though, the one analyst we see covering the stock thinks that Rent.com.au will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Rent.com.au Growing?
Rent.com.au managed to reduce its cash burn by 68% over the last twelve months, which suggests it's on the right flight path. And while hardly exciting, it was still good to see revenue growth of 19% during that time. It seems to be growing nicely. 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 Rent.com.au To Raise More Cash For Growth?
While Rent.com.au 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. 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.
Rent.com.au has a market capitalisation of AU$93m and burnt through AU$657k last year, which is 0.7% of the company's 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 Rent.com.au's Cash Burn A Worry?
It may already be apparent to you that we're relatively comfortable with the way Rent.com.au is burning through its cash. 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. And even though its revenue growth wasn't quite as impressive, it was still a positive. It's clearly very positive to see that at least one analyst is forecasting the company will break even fairly soon. Looking at all the measures in this article, together, we're not worried about its rate of cash burn, which seems to be under control. Taking an in-depth view of risks, we've identified 5 warning signs for Rent.com.au that you should be aware of before investing.
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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