Canada markets closed
  • S&P/TSX

    19,991.88
    +105.94 (+0.53%)
     
  • S&P 500

    4,207.27
    -2.97 (-0.07%)
     
  • DOW

    33,336.67
    +27.16 (+0.08%)
     
  • CAD/USD

    0.7835
    -0.0001 (-0.02%)
     
  • CRUDE OIL

    93.99
    -0.35 (-0.37%)
     
  • BTC-CAD

    30,585.74
    -158.80 (-0.52%)
     
  • CMC Crypto 200

    568.09
    -6.65 (-1.16%)
     
  • GOLD FUTURES

    1,804.80
    -2.40 (-0.13%)
     
  • RUSSELL 2000

    1,975.26
    +6.01 (+0.31%)
     
  • 10-Yr Bond

    2.8880
    +0.1020 (+3.66%)
     
  • NASDAQ futures

    13,332.25
    +21.00 (+0.16%)
     
  • VOLATILITY

    20.20
    +0.46 (+2.33%)
     
  • FTSE

    7,465.91
    -41.20 (-0.55%)
     
  • NIKKEI 225

    27,819.33
    -180.63 (-0.65%)
     
  • CAD/EUR

    0.7588
    0.0000 (0.00%)
     

We Think Ayro (NASDAQ:AYRO) Needs To Drive Business Growth Carefully

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether Ayro (NASDAQ:AYRO) shareholders should 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'. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Ayro

Does Ayro 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. In March 2022, Ayro had US$63m in cash, and was debt-free. In the last year, its cash burn was US$29m. That means it had a cash runway of about 2.2 years as of March 2022. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
debt-equity-history-analysis

How Well Is Ayro Growing?

Notably, Ayro actually ramped up its cash burn very hard and fast in the last year, by 124%, signifying heavy investment in the business. On the bright side, at least operating revenue was up 30% over the same period, giving some cause for hope. In light of the data above, we're fairly sanguine about the business growth trajectory. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Ayro Raise Cash?

While Ayro seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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).

Ayro has a market capitalisation of US$39m and burnt through US$29m last year, which is 74% of the company's market value. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.

So, Should We Worry About Ayro's Cash Burn?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Ayro's revenue growth was relatively promising. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. An in-depth examination of risks revealed 5 warning signs for Ayro that readers should think about before committing capital to this stock.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting