Yahoo Finance We're Interested To See How Credo Technology Group Holding (NASDAQ:CRDO) Uses Its Cash Hoard To Grow
Just because a business does not make any money, does not mean that the stock will go down. By way of example, Credo Technology Group Holding (NASDAQ:CRDO) has seen its share price rise 110% over the last year, delighting many shareholders. 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 its strong share price performance, we think it's worthwhile for Credo Technology Group Holding shareholders to consider whether its cash burn is concerning. 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for Credo Technology Group Holding
Does Credo Technology Group Holding Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Credo Technology Group Holding last reported its January 2024 balance sheet in February 2024, it had zero debt and cash worth US$409m. Importantly, its cash burn was US$2.7m over the trailing twelve months. So it had a very long cash runway of many years from January 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.
How Well Is Credo Technology Group Holding Growing?
Given our focus on Credo Technology Group Holding's cash burn, we're delighted to see that it reduced its cash burn by a nifty 93%. But it was a bit disconcerting to see operating revenue down 13% in that time. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Hard Would It Be For Credo Technology Group Holding To Raise More Cash For Growth?
While Credo Technology Group Holding seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).
Since it has a market capitalisation of US$3.5b, Credo Technology Group Holding's US$2.7m in cash burn equates to about 0.08% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
So, Should We Worry About Credo Technology Group Holding's Cash Burn?
It may already be apparent to you that we're relatively comfortable with the way Credo Technology Group Holding is burning through its cash. For example, we think its cash burn reduction suggests that the company is on a good path. While its falling revenue wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Credo Technology Group Holding that potential shareholders should take into account before putting money into a stock.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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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.
