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Just because a business isn’t making money doesn’t mean the stock will go down. For example, ALi (TPE: 3041) Shareholders have behaved very well over the past year, with the share price surging 112%. But the harsh reality is that many, many loss-making companies burn all their cash and go bankrupt.
So despite the share price surge, we think it’s worth considering whether ALi’s cash consumption is too risky. In this article, we define cash consumption as its annual (negative) free cash flow, which is the amount of money a business spends each year to finance its growth. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
Check out our latest analysis for ALi
Does ALi have a long cash trail?
A company’s cash flow track is calculated by dividing its cash reserve by its cash consumption. As of December 2020, ALi had NT $ 1.4 billion in cash and no debt. Last year, its cash consumption was NT $ 407 million. Therefore, as of December 2020, he had 3.5 years of cash flow. A lead of this length gives the company the time and space it needs to develop its business. Below you can see how his cash holdings have evolved over time.
How well is ALi growing?
Overall, we think it is slightly positive that ALi has reduced its cash consumption by 10% over the past twelve months. And operating income also rose 3.0%. In light of the above data, we are quite optimistic about the company’s growth trajectory. In reality, this article does only a brief study of company growth data. You can see how ALi has grown their business over time by checking out this visualization of their revenue and profit history.
Can ALi easily raise more cash?
There is no doubt that ALi appears to be in a good enough position to manage his cash consumption, but even if this is only hypothetical, it is still worth wondering how easily he could raise more money. money to finance growth. The issuance of new shares or indebtedness are the most common ways for a listed company to raise more funds for its activities. One of the main advantages of publicly traded companies is that they can sell stocks to investors to raise cash and finance growth. By comparing a company’s annual cash consumption to its total market capitalization, we can roughly estimate how many shares it would need to issue to run the business for another year (at the same burn rate).
ALi has a market cap of NT $ 5.7 billion and burned NT $ 407 million last year, or 7.1% of the company’s market value. Given that this is a rather small percentage, it would probably be very easy for the company to finance the growth of another year by issuing new shares to investors, or even taking out a loan.
Is ALi’s Cash Burn a concern?
As you can probably see by now, we’re not too concerned about ALi’s money consumption. For example, we think his cash flow trail suggests the business is on the right track. Its weak point is the growth of its income, but even that was not so bad! Considering all of the factors covered in this article, we are not too concerned about the company’s cash consumption, although we believe shareholders should keep an eye on its development. An in-depth examination of the risks identified 1 warning sign for ALi that readers should think about before committing any capital to this stock.
If you’d rather discover another business with better fundamentals, don’t miss this free list of interesting companies, which have high return on equity and low leverage or this list of stocks that are all expected to grow.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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