Just because a company isn’t making money doesn’t mean the stock will fall. For example, software-as-a-service company Salesforce.com lost money for years while growing its recurring revenue. However, if you had held shares since 2005, you would have done very well indeed. But while history celebrates these rare successes, the failures are often forgotten. Who remembers Pets.com?

Given this risk, we wanted to check whether SAI.TECH Worldwide (NASDAQ:SAI) shareholders should be concerned about its cash burn. In this report, we will look at the company’s annual negative free cash flow, which will be referred to as its “cash burn”. The first step is to compare cash burn to cash reserves to give us its “cash runway”.

Check out our latest analysis for SAI.TECH Global

Does SAI.TECH Global have a long cash runway?

You can calculate a company’s cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When SAI.TECH Global reported its last balance sheet in April 2024, for December 2023, it had no debt and cash of US$9.9m. Over the last year, its cash burn was US$8.2m. So it had a cash runway of roughly 15 months from December 2023. That’s not too bad, but it’s fair to say that unless cash burn reduces drastically, the end of its cash runway is in sight. Below you can see how cash levels have changed over time.

How well is SAI.TECH Global growing?

At first glance, it’s a little concerning to see that SAI.TECH Global has actually increased its cash burn by 20% year over year. What’s also troubling is that operating income has actually declined by 36% during that time. Considering these two metrics, we’re a little concerned about the company’s trajectory. In fact, this article is just a quick study of the company’s growth data. This graph of historical earnings and revenue shows how SAI.TECH Global is building its business over time.

Can SAI.TECH Global easily raise more money?

SAI.TECH’s global revenue is falling and cash burn is rising, so many may need to raise more money in the future. Companies can finance themselves either through debt or through equity. Many companies end up issuing new shares to fund future growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into how diluted shareholders would be if the company had to raise enough money to cover another year’s cash burn.

Since SAI.TECH Global’s market cap is $21 million, its cash burn of $8.2 million is about 40% of its market value. That’s a pretty high cash burn, so if the company had to sell shares to cover another year’s operating expenses, shareholders would suffer costly dilution.

So should we be worried about SAI.TECH Global’s cash burn?

While we are a little concerned about the declining revenues, we must mention that we found SAI.TECH Global’s cash runway to be relatively promising. Given the factors mentioned in this brief report, we think the cash burn is a little risky and we are a little nervous about the stock. In addition, SAI.TECH Global has 3 warning signs (and two we don’t like so much) that we think you should know about.

Naturally, If you look elsewhere, you may find a fantastic investment. So take a look at the free List of companies with significant insider holdings and this list of growth stocks (according to analyst forecasts)

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.