Companies Like Alkami Technology (NASDAQ:ALKT) Can Afford To Invest In Growth
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, 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So should Alkami Technology (NASDAQ:ALKT) 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'. 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 Alkami Technology
How Long Is Alkami Technology's Cash Runway?
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 Alkami Technology last reported its December 2023 balance sheet in February 2024, it had zero debt and cash worth US$92m. Looking at the last year, the company burnt through US$24m. Therefore, from December 2023 it had 3.9 years of cash runway. Importantly, though, analysts think that Alkami Technology will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.
How Well Is Alkami Technology Growing?
It was fairly positive to see that Alkami Technology reduced its cash burn by 44% during the last year. On top of that, operating revenue was up 30%, making for a heartening combination It seems to be growing nicely. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can Alkami Technology Raise Cash?
We are certainly impressed with the progress Alkami Technology 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
Alkami Technology's cash burn of US$24m is about 1.0% of its US$2.5b 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.
How Risky Is Alkami Technology's Cash Burn Situation?
As you can probably tell by now, we're not too worried about Alkami Technology's cash burn. For example, we think its cash runway suggests that the company is on a good path. And even its cash burn reduction was very encouraging. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Taking an in-depth view of risks, we've identified 2 warning signs for Alkami Technology that you should be aware of before investing.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)
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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.
