Business growth

We think Jayride Group (ASX:JAY) needs to drive its business growth cautiously

Just because a company isn’t making money doesn’t mean the stock will go down. For example, biotechnology and mining exploration companies often lose money for years before succeeding with a new treatment or mineral discovery. However, only a fool would ignore the risk of a loss-making company burning through its cash too quickly.

So should Jayride Group (ASX:JAY) Are shareholders worried about his cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.

See our latest analysis for Jayride Group

How long is the Jayride group cash trail?

A cash trail is defined as the length of time it would take a business to run out of cash if it continued to spend at its current rate of cash burn. As of December 2021, Jayride Group had A$5.7 million in cash and no debt. Looking at last year, the company spent A$5.1 million. That means it had a cash trail of around 13 months as of December 2021. While that cash trail isn’t too much of a concern, sensible holders would look away and consider what would happen if the company ran out of cash. silver. Below you can see how its liquidity has changed over time.

ASX:JAY Debt to Equity History July 8, 2022

How is Jayride Group’s cash burn changing over time?

While it’s great to see that Jayride Group has already started to generate revenue from its operations, last year it only produced A$1.4m so we don’t believe it’s generating significant revenue at this stage. Therefore, we believe it is a little early to focus on revenue growth, so we will limit ourselves to looking at how cash burn has evolved over time. Cash burn has been fairly flat over the past year, suggesting that management is keeping spending steady as the company advances its strategy. Jayride Group makes us a bit nervous due to its lack of substantial operating revenue. We therefore generally prefer stocks from this list of stocks whose analysts predict growth.

How difficult would it be for Jayride Group to raise more cash for growth?

Even though it has recently reduced its cash burn, shareholders should still consider how easy it would be for Jayride Group to raise more cash in the future. In general, a listed company can raise new funds by issuing shares or by going into debt. Many companies end up issuing new shares to fund their future growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.

Jayride Group’s cash burn of A$5.1 million represents approximately 16% of its market capitalization of A$33 million. As a result, we risk the company being able to raise more cash for growth without too much trouble, but at the cost of some dilution.

How risky is Jayride Group’s cash burn situation?

Jayride Group appears to be in pretty good shape when it comes to its cash burn situation. Not only was its cash trail pretty good, but its cash burn relative to its market capitalization was a real plus. While we don’t think it has a problem with its cash burn, the analysis we’ve done in this article suggests that shareholders should think carefully about the potential cost of raising more money in the future. Taking a deeper dive, we spotted 5 warning signs for Jayride Group you should know, and 2 of them make us uncomfortable.

Sure, you might find a fantastic investment by looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to 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.