Yahoo Finance Is Zoono Group (ASX:ZNO) In A Good Position To Invest In Growth?
We can readily understand why investors are attracted to unprofitable companies. By way of example, Zoono Group (ASX:ZNO) has seen its share price rise 844% over the last year, delighting many shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
Given its strong share price performance, we think it's worthwhile for Zoono Group shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for Zoono Group
When Might Zoono Group Run Out Of Money?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Zoono Group last reported its balance sheet in June 2019, it had zero debt and cash worth NZ$3.1m. Importantly, its cash burn was NZ$2.9m over the trailing twelve months. Therefore, from June 2019 it had roughly 13 months of cash runway. 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 Zoono Group Growing?
Some investors might find it troubling that Zoono Group is actually increasing its cash burn, which is up 37% in the last year. Also concerning, operating revenue was actually down by 27% in that time. Considering both these metrics, we're a little concerned about how the company is developing. In reality, this article only makes a short study of the company's growth data. You can take a look at how Zoono Group has developed its business over time by checking this visualization of its revenue and earnings history.
How Easily Can Zoono Group Raise Cash?
Since Zoono Group can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. 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 to fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
Zoono Group has a market capitalisation of NZ$143m and burnt through NZ$2.9m last year, which is 2.0% 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.
How Risky Is Zoono Group's Cash Burn Situation?
On this analysis of Zoono Group's cash burn, we think its cash burn relative to its market cap was reassuring, while its falling revenue has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Zoono Group's situation. Notably, our data indicates that Zoono Group insiders have been trading the shares. You can discover if they are buyers or sellers by clicking on this link.
Of course Zoono Group may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
