We believe BirdDog Technology (ASX:BDT) should drive business growth carefully

We can easily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the stock since 1999, you would have made a fortune. But while history praises those rare successes, those that fail are often forgotten; Who remembers Pets.com?

Given this risk, we thought we’d take a look at whether BirdDog Technology (ASX:BDT) Shareholders should be concerned about their cash drain. For the purposes of this article, we will define cash consumption as the amount of cash the company spends each year to finance its growth (also called negative free cash flow). First, we’ll determine your cash flow by comparing your cash consumption to your cash reserves.

Check out our latest review of BirdDog technology

How long is BirdDog Technology’s cash trail?

A trail of cash is defined as the time it would take for a business to run out of money if it continued to spend at its current rate of cash consumption. As of June 2022, BirdDog Technology had A$23 million in cash and no debt. In the last year, his cash consumption was 11 million Australian dollars. So it had a cash track record of about 2.0 years as of June 2022. That’s decent as it gives the company a couple of years to build its business. As shown below, you can see how your cash holdings have changed over time.

debt-equity-history-analysis
ASX: BDT Debt-to-Equity History Sep 3, 2022

How well is BirdDog technology growing?

At first glance, it’s a bit worrying to see that BirdDog Technology increased its cash consumption by 47%, year over year. In light of that, the year-over-year operating leverage is a bit disheartening. Taken together, we think these growth metrics are a bit concerning. Of course, we’ve only taken a quick look at the stock’s growth metrics here. This historical revenue and earnings chart shows how BirdDog Technology is developing its business over time.

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Can BirdDog technology easily raise more cash?

Although BirdDog Technology seems to be doing very well in its business, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a publicly traded company can raise new cash by issuing shares or acquiring debt. Typically, a company will sell new shares on its own to raise cash and fuel growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into how much shareholders would be diluted if the company needed to raise enough cash to cover another year’s cash burn.

Given that it has a market capitalization of A$35 million, BirdDog Technology’s A$11 million in cash is equivalent to approximately 33% of its market value. That’s a pretty notable cash burn, so if the company were to sell shares to cover another year’s cost of operations, shareholders would suffer a costly dilution.

Is BirdDog Technology’s cash consumption a concern?

In this analysis of BirdDog Technology’s cash burn, we think its cash trajectory was reassuring, while its increasing cash burn has us a bit concerned. We don’t think its cash consumption is particularly problematic, but after considering the variety of factors in this article, we think shareholders should monitor how it changes over time. Readers should have a solid understanding of trading risks before investing in a stock, and we’ve seen 1 warning sign for BirdDog technology that potential shareholders should consider before putting money into a stock.

Of course, you can find a fantastic investment if you look elsewhere. so take a look at this free list of companies that experts buy, and this list of stocks growing stocks (according to analyst forecasts)

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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 is not a recommendation to buy or sell any stock, and it does not take into account your goals or financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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