Just because a company isn't making profits doesn't mean its stock price will go down. For example, if you've owned the stock since 2005, Salesforce.com, a software-as-a-service business, has lost money for years while its recurring revenue has grown, but if you've owned the stock since 2005, it's certainly a very It would have worked fine. But while history celebrates the rare successes, the failures are often forgotten. Does anyone remember Pets.com?
Considering this risk, I decided to consider the following. smart rent (NYSE:SMRT) shareholders have cash burn to worry about. In this article, we define cash burn as the amount of cash a company spends each year to fund growth (also known as negative free cash flow). First, we compare its cash burn to its cash reserves to calculate its cash runway.
Check out our latest analysis for SmartRent.
How long is SmartRent's cash runway?
A company's cash runway is the amount of time it takes to use up its cash reserves at its current cash burn rate. As of September 2023, SmartRent had US$211 million in cash and no debt. Looking at last year, the company used up his US$4 million. Therefore, a very long funding period was required, spanning many years from September 2023. But importantly, analysts believe SmartRent will reach cash flow breakeven by then. In that case, you may never reach the end of your financial runway. You can see how its cash holdings have changed over time, as shown below.
Is SmartRent growing well?
SmartRent has managed to reduce cash consumption by 96% over the past 12 months. This is very promising considering the need for cash. Additionally, revenue increased 34% during the same period. It's also a good sign. Overall, we can say that the growth has been quite impressive. The past is always worth studying, but it is the future that matters most. So it might be worth taking a peek at how much the company is expected to grow over the next few years.
Can SmartRent easily raise more cash?
There's no doubt that SmartRent is in a pretty good position when it comes to managing cash burn, but even if that's only a hypothesis, it's always worth asking how it can easily raise more capital to fund growth. There is. The most common ways for publicly traded companies to raise more money for their operations is by issuing new shares or taking on debt. Many companies end up issuing new shares to fund future growth. You can compare a company's cash burn to its market capitalization to find out how many new shares a company needs to issue to finance its operations for one year.
SmartRent's cash burn of $4 million is equivalent to about 0.7% of its market capitalization of $589 million. As such, it will almost certainly be able to easily raise cash by borrowing a small amount or issuing a few shares to fund growth next year.
Are you worried about SmartRent's cash burn?
As you've probably already noticed, we're relatively happy with how SmartRent is running out of money. For example, we think a reduction in cash burn suggests that the company is moving in a positive direction. However, it is no exaggeration to say that revenue growth was also very encouraging. It's clearly very positive that the analysts are predicting that the company will reach breakeven soon. After considering various factors in this article, we think the company is well-positioned to continue funding growth, so we're pretty relaxed about its cash burn.A detailed investigation of the risks revealed 1 warning sign for SmartRent Here's what readers should consider before investing money in this stock.
of course SmartRent may not be the best stock to buy.So you might want to see this free A collection of companies with a high return on equity, or a list of stocks that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
