Business growth

We believe Blackstone Minerals (ASX:BSX) can afford to drive business growth

Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. For example, although software-as-a-service company lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. That said, unprofitable businesses are risky because they could potentially burn all their money and get into trouble.

Given this risk, we thought we would examine whether black stone minerals (ASX:BSX) shareholders should be concerned about its cash burn. For the purposes of this article, we will define cash burn as the amount of money the business spends each year to finance its growth (also known as negative free cash flow). We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.

Check out our latest analysis for Blackstone Minerals

Does Blackstone Minerals have a long cash trail?

A company’s cash trail is calculated by dividing its cash hoard by its cash burn. As of June 2022, Blackstone Minerals had cash of A$41 million and no debt. Last year, its cash burn was A$36 million. This means it had a cash trail of around 13 months in June 2022. Notably, however, analysts believe Blackstone Minerals will break even (at a free cash flow level) before then. In this case, he may never reach the end of his cash trail. The image below shows how his cash balance has changed over the past few years.

ASX: BSX Debt to Equity History October 7, 2022

How is Blackstone Minerals cash burn changing over time?

Although Blackstone Minerals recorded revenues of A$36,000 last year, it actually earned no operating income. This means that we consider this to be a pre-revenue business, and will focus our analysis of growth on cash burn, for now. Soaring cash burn of 138% year over year is certainly testing our nerves. It’s fair to say that this type of rate of increase cannot be sustained for very long without putting pressure on the balance sheet. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analysts’ forecasts for the company.

Can Blackstone Minerals raise more money easily?

Although Blackstone Minerals has a strong cash trail, its cash burn trajectory may cause some shareholders to think ahead to when the company might need to raise more cash. In general, a listed company can raise new funds by issuing shares or by going into debt. Typically, a company will sell new stock on its own to raise cash and drive growth. We can compare a company’s cash burn to its market capitalization to get an idea of ​​how many new shares a company would need to issue to fund a year’s operations.

Blackstone Minerals has a market capitalization of A$92m and burned A$36m last year, or 39% of the company’s market value. That’s a pretty notable cash burn, so if the company were to sell stock to cover another year’s cost of operations, shareholders would suffer costly dilution.

So should we be worried about Blackstone Minerals cash burn?

On this analysis of Blackstone Minerals’ cash burn, we think its cash trail was reassuring, while its growing cash burn worries us a bit. It is clearly very positive to see that analysts expect the company to break even soon. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don’t think they should be concerned. On a different note, we conducted a thorough investigation of the company and identified 3 warning signs for Blackstone Minerals (1 should not be ignored!) which you should be aware of before investing here.

Sure, you might find a fantastic investment by looking elsewhere. So take a look at this free list of companies that insiders are buying, and this list of growth stocks (based on analyst forecasts)

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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