Yahoo Finance We're Interested To See How Windward (LON:WNWD) Uses Its Cash Hoard To Grow
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. Indeed, Windward (LON:WNWD) stock is up 168% in the last year, providing strong gains for shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
In light of its strong share price run, we think now is a good time to investigate how risky Windward's cash burn is. 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.
See our latest analysis for Windward
How Long Is Windward's Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In December 2023, Windward had US$17m in cash, and was debt-free. Looking at the last year, the company burnt through US$3.9m. So it had a cash runway of about 4.4 years from December 2023. Importantly, though, analysts think that Windward will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.
How Well Is Windward Growing?
Windward managed to reduce its cash burn by 74% over the last twelve months, which suggests it's on the right flight path. Pleasingly, this was achieved with the help of a 31% boost to revenue. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
Can Windward Raise More Cash Easily?
While Windward seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Windward's cash burn of US$3.9m is about 3.5% of its US$113m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.
Is Windward's Cash Burn A Worry?
As you can probably tell by now, we're not too worried about Windward's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. And even its revenue growth was very encouraging. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Windward that investors should know when investing in the stock.
Of course Windward 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.
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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.
