U.S. markets open in 26 minutes
  • S&P Futures

    3,773.25
    -48.00 (-1.26%)
     
  • Dow Futures

    30,651.00
    -348.00 (-1.12%)
     
  • Nasdaq Futures

    11,530.00
    -161.00 (-1.38%)
     
  • Russell 2000 Futures

    1,696.10
    -25.30 (-1.47%)
     
  • Crude Oil

    109.51
    -0.27 (-0.25%)
     
  • Gold

    1,822.70
    +5.20 (+0.29%)
     
  • Silver

    20.55
    -0.19 (-0.91%)
     
  • EUR/USD

    1.0407
    -0.0037 (-0.35%)
     
  • 10-Yr Bond

    3.0170
    -0.0760 (-2.46%)
     
  • Vix

    29.40
    +1.04 (+3.67%)
     
  • GBP/USD

    1.2129
    +0.0007 (+0.05%)
     
  • USD/JPY

    136.1540
    -0.3910 (-0.29%)
     
  • BTC-USD

    19,204.89
    -813.42 (-4.06%)
     
  • CMC Crypto 200

    411.64
    -28.02 (-6.37%)
     
  • FTSE 100

    7,172.50
    -139.82 (-1.91%)
     
  • Nikkei 225

    26,393.04
    -411.56 (-1.54%)
     

Companies Like ActiveOps (LON:AOM) Can Afford To Invest In Growth

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

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. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should ActiveOps (LON:AOM) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for ActiveOps

How Long Is ActiveOps' 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. In September 2021, ActiveOps had UK£11m in cash, and was debt-free. Looking at the last year, the company burnt through UK£733k. That means it had a cash runway of very many years as of September 2021. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
debt-equity-history-analysis

Is ActiveOps' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because ActiveOps actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. While it's not that amazing, we still think that the 10.0% increase in revenue from operations was a positive. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can ActiveOps Raise Cash?

While ActiveOps is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.

ActiveOps has a market capitalisation of UK£49m and burnt through UK£733k last year, which is 1.5% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

So, Should We Worry About ActiveOps' Cash Burn?

As you can probably tell by now, we're not too worried about ActiveOps' 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 revenue growth was its weakest feature, but we are not concerned about it. 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. Separately, we looked at different risks affecting the company and spotted 5 warning signs for ActiveOps (of which 1 doesn't sit too well with us!) you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.