Just because a business isn’t making money doesn’t mean the stock will go down. For example, biotech and mineral exploration companies often lose money for years before they are successful with a new treatment or mineral discovery. But while history praises these rare successes, those that fail are often forgotten; who remembers Pets.com?
So should Aspen Group (NASDAQ: ASPU) Are shareholders worried about its consumption of cash? For the purposes of this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow). Let’s start with a review of the company’s cash flow, relative to its cash consumption.
See our latest analysis for Aspen Group
Does Aspen Group have a long cash flow trail?
A company’s cash flow track is calculated by dividing its cash reserve by its cash consumption. As of July 2021, Aspen Group had US $ 6.6 million in cash and was debt free. Importantly, his cash consumption was US $ 10 million in the past twelve months. It therefore had a cash flow trail of around 8 months from July 2021. Notably, analysts predict that the Aspen Group will break even (at the level of free cash flow) in around 14 months. This means that, unless the company quickly reduces its consumption of cash, it may well be looking to raise more cash. Pictured below, you can see how his cash holdings have changed over time.
How is Aspen Group growing?
At first glance, it’s a bit worrying that Aspen Group actually increased its cash usage by 26% year over year. The silver lining is that the turnover increased by 34%, which shows that the company is growing at the top. Overall we would say the business is improving over time. Obviously, however, the crucial factor is whether the company will expand its business in the future. You might want to take a look at how the business is expected to grow over the next few years.
How easily can Aspen Group raise funds?
As the Aspen Group has increased its consumption of cash, the market will likely consider how it can raise more cash if needed. Businesses can raise capital through debt or equity. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. By comparing a company’s annual cash consumption to its total market capitalization, we can roughly estimate how many shares it would need to issue to run the business for another year (at the same burn rate).
Aspen Group’s cash consumption of US $ 10 million represents approximately 7.8% of its market capitalization of US $ 130 million. Given that this is a rather small percentage, it would probably be very easy for the company to finance the growth of another year by issuing new shares to investors, or even taking out a loan.
So, should we be worried about the Aspen Group losing cash?
It may already be obvious to you that we are relatively comfortable with the way Aspen Group burns its cash. In particular, we believe that the growth in its revenues is proof that the company has good control over its expenses. While we find her cash flow trail to be a bit negative, once we consider the other metrics mentioned in this article together, the overall picture is one we’re comfortable with. There is no doubt that shareholders can be happy that analysts expect it to break even soon. Based on the factors mentioned in this article, we believe its cash-consuming situation deserves some shareholders’ attention, but we don’t think they should be worried. Separately, we examined different risks affecting the business and identified 3 warning signs for Aspen Group (of which 1 is of concern!) that you should know about.
If you prefer to consult another company with better fundamentals, don’t miss this free list of interesting companies that have HIGH ROE and low debt or this list of stocks that are all expected to grow.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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