Will Shape Robotics (CPH: SHAPE) spend its money wisely?
Just because a business isn’t making money doesn’t mean the stock will go down. For example, although the software as a service company Salesforce.com lost money for years as it increased its recurring revenue, if you had owned stocks since 2005, you would have done very well. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.
So should Shape robotics (CPH: SHAPE) Are shareholders worried about its consumption of cash? In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash flow track.
See our latest review for Shape Robotics
When could Shape Robotics 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 September 2021, Shape Robotics had SEK 9.7 million in cash and had no debt. Importantly, his cash consumption was 16 million crowns in the past twelve months. This means that it had a cash flow trail of around 7 months in September 2021. This is a fairly short cash flow trail, indicating that the company needs to either reduce its annual cash flow consumption or replenish its cash flow. Pictured below, you can see how his cash holdings have changed over time.
How does Shape Robotics’ money consumption change over time?
In our opinion, Shape Robotics is not yet generating significant operating income, as it has only brought in 6.5 million crowns in the past twelve months. As a result, we believe it is a bit early to focus on revenue growth, so we’ll limit ourselves to looking at how cash consumption has changed over time. Over the past year, its cash consumption has actually increased by 8.2%, which suggests that management is increasing its investments in future growth, but not too quickly. This is not necessarily a bad thing, but investors should be aware that it will shorten the liquidity trail. Granted, we are a little cautious of Shape Robotics due to its lack of significant operating revenue. So we generally prefer stocks from this list of stocks that analysts expect to grow.
How easily can Shape Robotics raise funds?
As its cash consumption increases (albeit slightly), Shape Robotics shareholders should always be aware of the possibility that it will need more cash in the future. Businesses can raise capital through debt or equity. Typically, a company itself will sell new stocks to raise funds and drive 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 one-year operations.
Since it has a market cap of 156 million crowns, Shape Robotics’ 16 million crowns cash consumption is equivalent to about 11% of its market value. As a result, we venture to think that the company could raise more cash for growth without too many problems, albeit at the cost of some dilution.
Is Shape Robotics’ money consumption a problem?
On this analysis of Shape Robotics’ cash consumption, we think its cash consumption relative to its market cap was reassuring, while its cash trail worries us a bit. Looking at the factors mentioned in this short report, we think its consumption of cash is a bit risky, and that makes us slightly nervous about the stock. Diving deeper, we spotted 6 warning signs for Shape Robotics you need to be aware, and 3 of them are potentially serious.
Sure Shape Robotics may not be the best stock to buy. So you might want to see this free a set of companies offering a high return on equity, or that list of stocks that insiders buy.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is 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 documents. Simply Wall St has no position in any of the stocks mentioned.