It's easy to see why investors are attracted to unprofitable companies. For example, his software-as-a-service business Salesforce.com lost money for years while recurring revenue grew, but if you've owned the stock since 2005, you're sure would have worked very well. That being said, there are risks involved, as unprofitable companies can burn through all their cash and go into distress.
So the obvious question is, SiteMinder (ASX:SDR) shareholders are debating whether they should be worried about the company's cash burn rate. This report examines the company's negative free cash flow for the year. We will refer to this as “cash burn” from now on. First, compare its cash burn to its cash reserves to determine its cash runway.
See the latest analysis for SiteMinder.
How long is SiteMinder's cache runway?
Cash runway is defined as the time it would take for a company to run out of cash if it continued to spend at its current cash burn rate. As of December 2023, SiteMinder had A$40 million in cash and no debt. Importantly, its cash burn was AU$29m in the trailing twelve months. So it had a cash runway of about 16 months from December 2023. Notably, however, analysts believe SiteMinder will break even (at a free cash flow level) by then. If that were to happen, the length of that financial runway would be at issue today. You can see how its cash holdings have changed over time, as shown below.
How fast is SiteMinder growing?
We consider the fact that SiteMinder was able to reduce its cash burn by 34% in the last year to be quite encouraging. On top of that, operating revenue was up 29%, an encouraging combination. Looking back, I think we have grown quite steadily. The past is always worth studying, but it is the future that matters most. For this reason, it makes a lot of sense to see what analysts are predicting for the company.
How easy is SiteMinder to raise funds?
SiteMinder seems to be in a pretty good position in terms of cash burn, but we think it's still worth considering how easily it could raise even more capital if it wanted to. Generally, listed companies can raise new cash by issuing stock or taking on debt. One of the main advantages of publicly traded companies is that they can sell stock to investors to raise cash and fund growth. By comparing a company's cash burn to its market capitalization, you can find out how many new shares a company needs to issue to finance its operations for one year.
SiteMinder has a market capitalization of A$1.5 billion and burned through A$29 million last year, equivalent to 1.9% of the company's market value. This means it could easily issue a few shares to fund further growth, and could very well be in a position to borrow cheaply.
How dangerous is SiteMinder's cash burn situation?
As you've probably noticed by now, we're relatively used to seeing SiteMinder run out of money. For example, we think cash burn relative to market capitalization suggests that the company is moving in a positive direction. The weak point is the cash runway, but it still wasn't bad. 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. In the absence of traditional metrics such as earnings per share or free cash flow to value a company, many are particularly interested in considering qualitative factors such as whether insiders are buying or selling stock. Be motivated. please note: Our data shows that SiteMinder insiders are trading the stock. Click here to see if insiders have been buying or selling.
of course SiteMinder 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 the articles are not intended as 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.
