Companies like Nayuki Holdings (HKG:2150) have the ability to invest in growth

Even if a business loses money, shareholders have the potential to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before they succeed with new processing methods or mineral discoveries. But while history praises these rare successes, those that fail are often forgotten. Who remembers Pets.com?

so it should Nai Xue Holdings (HKG:2150) Shareholders worry about burning money? For the purposes of this article, we define cash burn as the amount of cash a company uses to fund its growth each year (also known as negative free cash flow). First, we’ll determine its cash runway by comparing its cash burn to cash reserves.

Check Opportunities and Risks in the hotel industry in Hong Kong.

When might Nayuki Holdings run out of money?

A company’s cash runway is calculated by dividing its cash reserves by its cash burn. As of June 2022, Nayuki Holdings had CNY 3.9 in cash and no debt. Last year, its cash burn was RMB 623 million. So it has a cash runway of 6.2 years from June 2022. It’s worth noting, however, that analysts believe that Nayuki Holdings will break even (at the free cash flow level) before then. If that happens, the length of its cash runway will be a matter of debate today. You can see how its cash balance changes over time in the image below.

Stock Exchange: 2150 Debt-to-Equity Swap History October 25, 2022

Is Nayuki Holdings’ revenue growing?

We are reluctant to extrapolate recent trends to assess its cash burn, as Nayuki Holdings actually had positive free cash flow last year, so operating income growth is probably our best measure at the moment. While that’s not a stellar growth, it’s good to see the company’s revenue grow 5.3% last year. Clearly, however, the key factor is whether the company will grow its business in the future. So, you might want to see how much the company is expected to grow over the next few years.

How hard is it for Nayuki Holdings to raise more cash for growth?

While Nayuki Holdings has shown solid revenue growth, it’s still worth considering that it could easily raise more cash, if only to drive faster growth. Generally, public companies can raise new cash by issuing stock or taking on debt. Many companies end up issuing new shares to fund future growth. By looking at a company’s cash burn relative to its market value, we can gain insight into how much shareholders will be diluted if the company needs to raise enough cash to cover another year’s cash burn.

Nayuki Holdings, with a market value of 6.8 yuan, burned 623 million yuan last year, accounting for 9.1% of the company’s market value. Given that’s a fairly small percentage, the company could easily fund another year of growth by issuing some new shares to investors or even taking out a loan.

Is Nayuki Holdings’ cash burn a concern?

As you probably know by now, we’re not too concerned about Nayuki Holdings’ cash burn. In particular, we think its cash runway stands out, proving that the company is doing a good job on spending. Its weakness is its revenue growth, but even that’s not too bad! There is no doubt that analysts predict it will break even in the near future, much to the reassurance of shareholders. After considering a number of factors in this article, we’re fairly relaxed about its cash burn, as the company appears to be well-positioned to continue funding its growth. We think it’s important to consider the cash burn of a loss-making company, but other considerations, such as the amount of the CEO’s compensation, can also enhance your understanding of the business. You can click here to view the annual compensation of Nayuki Holdings’ CEO.

If you want to check out another company with better fundamentals, don’t miss it free An interesting list of companies that have high ROE and low debt or this list of stocks all predict growth.

Valuation is complicated, but we’re helping make it simple.

find out if Nai Xue Holdings May be over or underestimated by viewing our comprehensive analysis, which includes Fair Value Estimates, Risks and Warnings, Dividends, Insider Trading and Financial Condition.

View free analysis

This article by Simply Wall St is general in nature. We provide commentary based solely on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to provide financial advice. It does not constitute advice to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to bring you long-term focused analytics driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Wall Street has no positions in any of the stocks mentioned.

Leave a Reply

Your email address will not be published. Required fields are marked *