U.S. markets open in 3 hours 3 minutes
  • S&P Futures

    4,164.50
    +2.00 (+0.05%)
     
  • Dow Futures

    33,967.00
    +44.00 (+0.13%)
     
  • Nasdaq Futures

    13,993.00
    -21.00 (-0.15%)
     
  • Russell 2000 Futures

    2,262.00
    +6.30 (+0.28%)
     
  • Crude Oil

    63.60
    +0.14 (+0.22%)
     
  • Gold

    1,772.90
    +6.10 (+0.35%)
     
  • Silver

    26.12
    +0.16 (+0.60%)
     
  • EUR/USD

    1.1986
    +0.0010 (+0.08%)
     
  • 10-Yr Bond

    1.5300
    0.0000 (0.00%)
     
  • Vix

    16.61
    -0.38 (-2.24%)
     
  • GBP/USD

    1.3789
    +0.0005 (+0.04%)
     
  • USD/JPY

    108.7630
    +0.0470 (+0.04%)
     
  • BTC-USD

    60,913.97
    -1,978.16 (-3.15%)
     
  • CMC Crypto 200

    1,354.89
    -26.06 (-1.89%)
     
  • FTSE 100

    7,030.48
    +46.98 (+0.67%)
     
  • Nikkei 225

    29,683.37
    +40.68 (+0.14%)
     

We're Not Very Worried About Pixelworks' (NASDAQ:PXLW) Cash Burn Rate

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·4 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Pixelworks (NASDAQ:PXLW) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Pixelworks

Does Pixelworks Have A Long 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. Pixelworks has such a small amount of debt that we'll set it aside, and focus on the US$32m in cash it held at December 2020. In the last year, its cash burn was US$14m. Therefore, from December 2020 it had 2.3 years of cash runway. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

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

How Well Is Pixelworks Growing?

At first glance it's a bit worrying to see that Pixelworks actually boosted its cash burn by 46%, year on year. Also concerning, operating revenue was actually down by 41% in that time. Taken together, we think these growth metrics are a little worrying. While the past is always worth studying, it is the future that matters most of all. 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 Pixelworks Raise Cash?

Even though it seems like Pixelworks is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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. 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.

Pixelworks' cash burn of US$14m is about 6.1% of its US$224m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About Pixelworks' Cash Burn?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Pixelworks' cash burn relative to its market cap was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Pixelworks' situation. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Pixelworks (of which 1 is a bit concerning!) you should know about.

Of course Pixelworks may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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. 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.

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