U.S. markets closed
  • S&P 500

    4,297.14
    +16.99 (+0.40%)
     
  • Dow 30

    33,912.44
    +151.39 (+0.45%)
     
  • Nasdaq

    13,128.05
    +80.87 (+0.62%)
     
  • Russell 2000

    2,020.59
    +3.97 (+0.20%)
     
  • Crude Oil

    88.89
    -3.20 (-3.47%)
     
  • Gold

    1,794.10
    -21.40 (-1.18%)
     
  • Silver

    20.22
    -0.48 (-2.33%)
     
  • EUR/USD

    1.0161
    -0.0097 (-0.94%)
     
  • 10-Yr Bond

    2.7910
    -0.0580 (-2.04%)
     
  • GBP/USD

    1.2052
    -0.0087 (-0.72%)
     
  • USD/JPY

    133.3060
    -0.1740 (-0.13%)
     
  • BTC-USD

    24,019.29
    -259.98 (-1.07%)
     
  • CMC Crypto 200

    570.60
    -20.16 (-3.41%)
     
  • FTSE 100

    7,509.15
    +8.26 (+0.11%)
     
  • Nikkei 225

    28,871.78
    +324.80 (+1.14%)
     

Here's Why We're Not Too Worried About Ballard Power Systems' (TSE:BLDP) Cash Burn Situation

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

Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Ballard Power Systems (TSE:BLDP) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Ballard Power Systems

When Might Ballard Power Systems Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2021, Ballard Power Systems had US$1.2b in cash, and was debt-free. Looking at the last year, the company burnt through US$68m. That means it had a cash runway of very many years as of September 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.

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

How Well Is Ballard Power Systems Growing?

At first glance it's a bit worrying to see that Ballard Power Systems actually boosted its cash burn by 47%, year on year. And we must say we find it concerning that operating revenue dropped 18% over the same period. Considering both these metrics, we're a little concerned about how the company is developing. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Ballard Power Systems Raise More Cash Easily?

Ballard Power Systems seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Since it has a market capitalisation of US$2.9b, Ballard Power Systems' US$68m in cash burn equates to about 2.4% of its market value. 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 Ballard Power Systems' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Ballard Power Systems is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. An in-depth examination of risks revealed 3 warning signs for Ballard Power Systems that readers should think about before committing capital to this stock.

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.