It is easy to understand why investors are attracted to unprofitable companies. For example, Torchlight energy resources Shareholders (NASDAQ: TRCH) did very well last year, with the stock price climbing 579%. But while history praises these rare successes, those that fail are often forgotten; who remembers Pets.com?
Given the strong performance of its share price, we believe it is worthwhile for Torchlight Energy Resources shareholders to consider whether its cash consumption is of concern. In this report, we will look at the company’s negative annual free cash flow, now referring to it as “cash consumption”. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
Check out our latest analysis for Torchlight Energy Resources
When could torch energy resources run out of money?
A cash flow trail is defined as the time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. As of March 2021, Torchlight Energy Resources had $ 13 million in cash and was debt free. Importantly, its cash consumption amounted to US $ 9.1 million in the last twelve months. Therefore, as of March 2021, he had around 17 months of cash flow. While this cash trail isn’t too much of a concern, sane holders would look into the distance and consider what would happen if the business ran out of cash. Below you can see how his cash holdings have evolved over time.
How does Torchlight Energy Resources’ cash consumption change over time?
While it’s great to see that Torchlight Energy Resources has already started generating operating income, last year it only produced US $ 111,000, so we don’t think it is generating any income. important at this point. Therefore, for the purposes of this analysis, we will focus on monitoring cash consumption. Over the past year, its cash consumption has actually increased by 2.2%, which suggests that management is increasing its investments in future growth, but not too quickly. However, the real cash flow trail for the business will therefore be shorter than suggested above if the expenses continue to increase. Torchlight Energy Resources is making us a little nervous due to its lack of substantial operating income. We prefer most of the stocks on this list of stocks that analysts expect to grow.
How difficult would it be for Torchlight Energy Resources to raise more cash for growth?
Although its consumption of cash is only increasing slightly, shareholders of Torchlight Energy Resources should still consider the potential need for additional cash, down the road. Businesses can raise capital through debt or equity. Many companies end up issuing new shares to fund their future growth. We can compare a company’s cash consumption to its market capitalization to get an idea of how many new shares a company would need to issue to fund its operations for a year.
Torchlight Energy Resources has a market capitalization of US $ 348 million and spent US $ 9.1 million last year, or 2.6% of the company’s market value. So he could almost certainly borrow a little to fund another year’s growth, or he could easily increase liquidity by issuing a few shares.
Is Torchlight Energy Resources money burning concern?
Even though its growing consumption of cash makes us a little nervous, we are forced to mention that we thought Torchlight Energy Resources’ consumption of cash relative to its market capitalization was relatively promising. 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. Separately, we examined different risks affecting the business and identified 3 warning signs for torchlight energy resources (2 of which are a bit rude!) that you should know.
Of course, you might find a fantastic investment looking elsewhere. So take a look at this free list of interesting companies, and this list of stock growth stocks (as predicted by analysts)
If you are looking to trade Torchlight energy resources, open an account with the cheapest platform * approved by professionals, Interactive brokers. Their clients from more than 200 countries and territories trade stocks, options, futures, currencies, bonds and funds around the world from a single integrated account.
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 material. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any comments on this article? Concerned about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.