We’re not worried about Beam Global’s (NASDAQ:BEEM) cash burn

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Just because a company isn’t making money doesn’t mean the stock will go down. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. But while the success stories are well known, investors shouldn’t ignore the many, many unprofitable companies that simply burn all their money and crash.

So the natural question for Global beam (NASDAQ:BEEM) shareholders is whether they should be concerned about its cash burn rate. 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 Beam Global

When might Beam Global run out of money?

A company’s cash trail is calculated by dividing its cash hoard by its cash burn. As of September 2021, Beam Global had cash of US$23 million and debt so minimal that we can ignore it for the purposes of this analysis. Importantly, its cash burn was US$6.7 million over the last twelve months. It therefore had a cash trail of around 3.4 years from September 2021. Importantly, however, analysts believe that Beam Global will break even 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.

NasdaqCM: BEEM Debt to Equity History January 22, 2022

How is Beam Global growing?

On the face of it, it’s a bit worrying that Beam Global actually increased its cash burn by 38%, year-over-year. But looking on the bright side, its revenue grew 71%, lending some credence to the growth story. Of course, with increased spending, shareholders will want the rapid growth to continue. We think he’s developing quite well, on second thought. 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.

How difficult would it be for Beam Global to raise more cash for growth?

Although Beam Global appears to be in a decent position, we believe it is still worth considering how easily it could raise more cash, should that prove desirable. Companies can raise capital either through debt or equity. Typically, a company will sell new stock on its own to raise cash and drive growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company running for another year (at the same burn rate).

With a market capitalization of $107 million, Beam Global’s cash burn of $6.7 million equates to approximately 6.3% of its market value. Since this is a rather small percentage, it would probably be very easy for the company to finance another year’s growth by issuing new shares to investors, or even taking out a loan.

How risky is Beam Global’s cash burn situation?

As you can probably tell by now, we’re not too worried about Beam Global’s cash burn. For example, we think its revenue growth suggests the company is on the right track. While its growing cash burn gives us reason to pause, the other metrics we’ve discussed in this article paint an overall positive picture. A real bright spot is that analysts expect the company to break even. After considering the various metrics mentioned in this report, we are quite comfortable with how the company is spending its money, as it appears to be on track to meet its medium-term needs. Readers should have a good understanding of business risks before investing in a stock, and we have spotted 2 warning signs for Beam Global potential shareholders should consider before investing in a stock.

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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