We Think Cepton (NASDAQ:CPTN) Needs To Drive Business Growth Carefully
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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So should Cepton (NASDAQ:CPTN) 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 Cepton
When Might Cepton Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Cepton last reported its September 2023 balance sheet in November 2023, it had zero debt and cash worth US$61m. Importantly, its cash burn was US$46m over the trailing twelve months. Therefore, from September 2023 it had roughly 16 months of cash runway. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Cepton Growing?
On balance, we think it's mildly positive that Cepton trimmed its cash burn by 13% over the last twelve months. On top of that, operating revenue was up 36%, making for a heartening combination We think it is growing rather well, upon reflection. 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.
How Hard Would It Be For Cepton To Raise More Cash For Growth?
While Cepton seems to be in a fairly good position, 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. 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.
Cepton's cash burn of US$46m is about 110% of its US$42m market capitalisation. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.
Is Cepton's Cash Burn A Worry?
On this analysis of Cepton's cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. An in-depth examination of risks revealed 2 warning signs for Cepton that readers should think about before committing capital to this stock.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, 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.
