Companies like Northern Drilling (OB: NODL) are able to invest in growth
Just because a business isn’t making money doesn’t mean the stock will go down. For example, Northern drilling Shareholders (OB: NODL) have performed very well over the past year, with the share price climbing 132%. But while the successes are well known, investors shouldn’t ignore the myriad of unprofitable companies that simply burn all their money and collapse.
In light of the strong rise in its share price, we believe the time has come to consider how risky Northern Drilling’s cash consumption is. In this report, we will consider the company’s annual negative free cash flow, which we now call “cash burn”. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash flow track.
See our latest review for Northern Drilling
How long is the Northern Drilling cash runway?
A company’s cash flow track is calculated by dividing its cash reserve by its cash consumption. When Northern Drilling last published its balance sheet in June 2021, it had no debt and cash worth US $ 14 million. In the past year, its cash consumption amounted to US $ 6.7 million. So he had a cash trail of around 2.1 years from June 2021. It’s arguably a prudent and reasonable trail length to have. You can see how her cash balance has changed over time in the image below.
Can Northern Drilling easily raise more money?
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.
Northern Drilling has a market capitalization of US $ 22 million and spent US $ 6.7 million last year, which is 30% of the market value of the company. That’s not insignificant, and if the company were to sell enough stock to fund another year’s growth at the current stock price, you’d likely see some pretty expensive dilution.
Is Northern Drilling’s cash burn a concern?
Because Northern Drilling is an early stage company, we don’t have a lot of data on which to form an opinion on its cash consumption. Having said that, it can be said that his cash flow trail was a real plus. To be frank, most money-burning businesses are relatively risky, but this one seems safer than most, in our opinion. On another note, Northern Drilling has 4 warning signs (and 2 that make us uncomfortable) we think you should be aware of.
Sure, you might find a fantastic investment looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analysts’ forecasts)
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