We Think Ocean Harvest Technology Group (LON:OHT) Can Easily Afford To Drive Business Growth

Even when a business is losing money, it’s possible for shareholders to make money if they buy a good business at the right price. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you’d have done very well indeed. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Ocean Harvest Technology Group (LON:OHT) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.

Check out our latest analysis for Ocean Harvest Technology Group

Does Ocean Harvest Technology Group Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In June 2023, Ocean Harvest Technology Group had €4.8m in cash, and was debt-free. In the last year, its cash burn was €519k. So it had a cash runway of about 9.2 years from June 2023. Even though this is but one measure of the company’s cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis

How Well Is Ocean Harvest Technology Group Growing?

Ocean Harvest Technology Group managed to reduce its cash burn by 74% over the last twelve months, which suggests it’s on the right flight path. And there’s no doubt that the inspiriting revenue growth of 79% assisted in that improvement. Considering these factors, we’re fairly impressed by its growth trajectory. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For Ocean Harvest Technology Group To Raise More Cash For Growth?

There’s no doubt Ocean Harvest Technology Group seems to be in a fairly good position, when it comes to managing its cash burn, but even if it’s only hypothetical, it’s always worth asking how easily it could raise more money to fund growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company’s cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year’s operations.

Ocean Harvest Technology Group’s cash burn of €519k is about 2.8% of its €18m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

So, Should We Worry About Ocean Harvest Technology Group’s Cash Burn?

It may already be apparent to you that we’re relatively comfortable with the way Ocean Harvest Technology Group is burning through its cash. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. And even its cash burn relative to its market cap was very encouraging. Taking all the factors in this report into account, we’re not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Its important for readers to be cognizant of the risks that can affect the company’s operations, and we’ve picked out 3 warning signs for Ocean Harvest Technology Group that investors should know when investing in the stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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