Yahoo Finance Companies Like Sphere 3D (NASDAQ:ANY) Are In A Position To Invest In Growth
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given this risk, we thought we'd take a look at whether Sphere 3D (NASDAQ:ANY) shareholders should be worried about its cash burn. 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
View our latest analysis for Sphere 3D
Does Sphere 3D Have A Long Cash Runway?
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. As at March 2024, Sphere 3D had cash of US$9.3m and no debt. Looking at the last year, the company burnt through US$6.5m. That means it had a cash runway of around 17 months as of March 2024. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Sphere 3D Growing?
Sphere 3D managed to reduce its cash burn by 74% over the last twelve months, which suggests it's on the right flight path. And it is also great to see that the revenue is up a stonking 234% in the same time period. Considering these factors, we're fairly impressed by its growth trajectory. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can Sphere 3D Raise Cash?
There's no doubt Sphere 3D seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
Sphere 3D's cash burn of US$6.5m is about 32% of its US$20m market capitalisation. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.
Is Sphere 3D's Cash Burn A Worry?
Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Sphere 3D's revenue growth was relatively promising. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Sphere 3D (of which 4 are a bit unpleasant!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, and this list of stocks growth stocks (according to analyst forecasts)
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
