We can readily understand why investors are attracted to unprofitable companies. 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should HLT Global Berhad (KLSE:HLT) shareholders be worried about its cash burn? In this report, we will consider the company’s annual negative free cash flow, henceforth referring to it as the ‘cash burn’. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.
See our latest analysis for HLT Global Berhad
Does HLT Global Berhad Have A Long 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. HLT Global Berhad has such a small amount of debt that we’ll set it aside, and focus on the RM33m in cash it held at December 2023. In the last year, its cash burn was RM23m. So it had a cash runway of approximately 17 months from December 2023. While that cash runway isn’t too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. The image below shows how its cash balance has been changing over the last few years.
How Well Is HLT Global Berhad Growing?
One thing for shareholders to keep front in mind is that HLT Global Berhad increased its cash burn by 666% in the last twelve months. While that’s concerning on it’s own, the fact that operating revenue was actually down 18% over the same period makes us positively tremulous. In light of the above-mentioned, we’re pretty wary of the trajectory the company seems to be on. Of course, we’ve only taken a quick look at the stock’s growth metrics, here. You can take a look at how HLT Global Berhad has developed its business over time by checking this visualization of its revenue and earnings history.
How Easily Can HLT Global Berhad Raise Cash?
Since HLT Global Berhad can’t yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. 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.
Since it has a market capitalisation of RM143m, HLT Global Berhad’s RM23m in cash burn equates to about 16% of its market value. Given that situation, it’s fair to say the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
Is HLT Global Berhad’s Cash Burn A Worry?
On this analysis of HLT Global Berhad’s cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Summing up, we think the HLT Global Berhad’s cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we’ve spotted 4 warning signs for HLT Global Berhad you should be aware of, and 3 of them can’t be ignored.
Of course HLT Global Berhad 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 with high insider ownership.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 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.
