There is no doubt that money can be made by owning shares of unprofitable companies. For example, although the software as a service company Salesforce.com lost money for years as it increased its recurring revenue, if you had owned stocks since 2005, you would have done very well. But while history praises these rare successes, those that fail are often forgotten; who remembers Pets.com?
So the natural question for Scout playgroup (STO: SCOUT) is whether they should be concerned with its rate of cash consumption. In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
See our latest review for Scout Gaming Group
Does Scout Gaming Group have a long cash flow trail?
You can calculate a company’s cash flow trail by dividing the amount of cash it has by the rate at which it spends that cash. As of March 2021, Scout Gaming Group had cash of Kroner 55 million and no debt. In the past year, his cash consumption was 62 million crowns. This means that he had a cash flow trail of around 11 months in March 2021. To be frank, this type of short track puts us on the lookout because it indicates that the company needs to significantly reduce its cash consumption, or raise funds imminently. Pictured below, you can see how his cash holdings have changed over time.
How is Scout Gaming Group growing?
Some investors might find it troubling that Scout Gaming Group is in fact increasing its cash consumption, which increased by 25% last year. That said, its revenue has grown 81% in the past year, so there is plenty of reason to believe the story of the growth. Of course, as spending increases, shareholders will want to see continued rapid growth. We think he’s developing pretty well, on second thought. In fact, this article does only a brief study of company growth data. You can see how Scout Gaming Group is increasing its revenue over time by viewing this visualization of past revenue growth.
Can Scout Gaming Group Easily Raise More Money?
While Scout Gaming Group seems to be in a pretty good position, it’s still worth considering how easily it could raise more money, even just to fuel faster growth. Generally speaking, a listed company can raise new liquidity by issuing shares or going into debt. Many companies end up issuing new shares to fund their future growth. By looking at one company’s cash consumption relative to its market capitalization, we get an idea of how many shareholders would be diluted if the company needed to raise enough cash to cover another’s cash consumption. year.
Given that it has a market cap of 534 million crowns, the 62 million crowns of Scout Gaming Group’s cash consumption is equivalent to around 12% of its market value. Given this situation, it’s fair to say the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
How risky is Scout Gaming Group’s cash flow situation?
On this analysis of Scout Gaming Group’s cash consumption, we think its revenue growth was reassuring, while its cash flow trail worries us a bit. Businesses that burn money are always on the riskier side of things, but after looking at all the factors discussed in this short article, we aren’t too concerned about its rate of cash consumption. By diving deeper, we spotted 5 warning signs for Scout Gaming Group you need to be aware of this, and 2 of them cannot be ignored.
Of course Scout Gaming Group might not be the best stock to buy. So you might want to see this free a set of companies offering a high return on equity, or that list of stocks that insiders buy.
When trading Scout Gaming Group or any other investment, use the platform considered by many to be the gateway for professionals to the global market, Interactive Brokers. You get the cheapest * trading on stocks, options, futures, forex, bonds and funds from around the world from a single integrated account.
This Simply Wall St article is general in nature. 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 material. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.