Yahoo Finance Nevada Sunrise Gold (CVE:NEV) Will Have To Spend Its Cash Wisely
Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given this risk, we thought we'd take a look at whether Nevada Sunrise Gold (CVE:NEV) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
See our latest analysis for Nevada Sunrise Gold
When Might Nevada Sunrise Gold Run Out Of Money?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In June 2019, Nevada Sunrise Gold had CA$313k in cash, and was debt-free. Looking at the last year, the company burnt through CA$1.4m. So it had a cash runway of approximately 3 months from June 2019. That's a very short cash runway which indicates an imminent need to douse the cash burn or find more funding. Depicted below, you can see how its cash holdings have changed over time.
How Is Nevada Sunrise Gold's Cash Burn Changing Over Time?
Nevada Sunrise Gold didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. With the cash burn rate up 38% in the last year, it seems that the company is ratcheting up investment in the business over time. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. Nevada Sunrise Gold makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.
Can Nevada Sunrise Gold Raise More Cash Easily?
Given its cash burn trajectory, Nevada Sunrise Gold shareholders should already be thinking about how easy it might be for it to raise further cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
Nevada Sunrise Gold's cash burn of CA$1.4m is about 57% of its CA$2.4m market capitalisation. From this perspective, it seems that the company spent a hugh amount relative to its market value, and we'd be very wary of a painful capital raising.
Is Nevada Sunrise Gold's Cash Burn A Worry?
As you can probably tell by now, we're rather concerned about Nevada Sunrise Gold's cash burn. In particular, we think its cash runway suggests it isn't in a good position to keep funding growth. While not as bad as its cash runway, its increasing cash burn is also a concern, and considering everything mentioned above, we're struggling to find much to be optimistic about. The measures we've considered in this article lead us to believe its cash burn is actually quite concerning, and its weak cash position seems likely to cost shareholders one way or another. Notably, our data indicates that Nevada Sunrise Gold insiders have been trading the shares. You can discover if they are buyers or sellers by clicking on this link.
Of course Nevada Sunrise Gold 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 that insiders are buying.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
