U.S. markets close in 2 hours 24 minutes
  • S&P 500

    3,808.23
    -10.60 (-0.28%)
     
  • Dow 30

    30,902.21
    -127.10 (-0.41%)
     
  • Nasdaq

    11,110.69
    -67.20 (-0.60%)
     
  • Russell 2000

    1,711.35
    -8.02 (-0.47%)
     
  • Crude Oil

    106.52
    -3.26 (-2.97%)
     
  • Gold

    1,810.10
    -7.40 (-0.41%)
     
  • Silver

    20.36
    -0.38 (-1.82%)
     
  • EUR/USD

    1.0487
    +0.0043 (+0.41%)
     
  • 10-Yr Bond

    2.9830
    -0.1100 (-3.56%)
     
  • GBP/USD

    1.2180
    +0.0057 (+0.47%)
     
  • USD/JPY

    135.6120
    -0.9330 (-0.68%)
     
  • BTC-USD

    19,137.38
    -843.46 (-4.22%)
     
  • CMC Crypto 200

    410.78
    -20.69 (-4.80%)
     
  • FTSE 100

    7,169.28
    -143.04 (-1.96%)
     
  • Nikkei 225

    26,393.04
    -411.56 (-1.54%)
     

Is Vista Gold (NYSEMKT:VGZ) In A Good Position To Invest In Growth?

  • Oops!
    Something went wrong.
    Please try again later.
·4 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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Vista Gold (NYSEMKT:VGZ) shareholders should 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's cash, relative to its cash burn.

View our latest analysis for Vista Gold

How Long Is Vista Gold's Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In December 2019, Vista Gold had US$8.3m in cash, and was debt-free. Importantly, its cash burn was US$7.1m over the trailing twelve months. That means it had a cash runway of around 14 months as of December 2019. 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.

AMEX:VGZ Historical Debt, March 23rd 2020
AMEX:VGZ Historical Debt, March 23rd 2020

How Is Vista Gold's Cash Burn Changing Over Time?

Vista Gold didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. As it happens, the company's cash burn reduced by 18% over the last year, which suggests that management are maintaining a fairly steady rate of business development, albeit with a slight decrease in spending. 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 Hard Would It Be For Vista Gold To Raise More Cash For Growth?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Vista Gold to raise more cash in the future. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash to drive 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).

Vista Gold has a market capitalisation of US$47m and burnt through US$7.1m last year, which is 15% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is Vista Gold's Cash Burn A Worry?

The good news is that in our view Vista Gold's cash burn situation gives shareholders real reason for optimism. Not only was its cash burn reduction quite good, but its cash burn relative to its market cap was a real positive. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Taking a deeper dive, we've spotted 4 warning signs for Vista Gold you should be aware of, and 1 of them is significant.

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)

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.