Yahoo Finance We're Not Worried About Blackbird's (LON:BIRD) Cash Burn
Just because a business does not make any money, does not mean that the stock will go down. 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?
So should Blackbird (LON:BIRD) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
See our latest analysis for Blackbird
How Long Is Blackbird's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2021, Blackbird had cash of UK£5.7m and no debt. In the last year, its cash burn was UK£1.6m. Therefore, from June 2021 it had 3.6 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Blackbird Growing?
Blackbird reduced its cash burn by 16% during the last year, which points to some degree of discipline. On top of that, operating revenue was up 31%, making for a heartening combination We think it is growing rather well, upon reflection. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Blackbird is building its business over time.
How Hard Would It Be For Blackbird To Raise More Cash For Growth?
We are certainly impressed with the progress Blackbird has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.
Blackbird's cash burn of UK£1.6m is about 1.4% of its UK£113m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.
So, Should We Worry About Blackbird's Cash Burn?
As you can probably tell by now, we're not too worried about Blackbird's cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. 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 Blackbird that investors should know when investing in the stock.
Of course Blackbird 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.
