Is Blue Sky Uranium (CVE: BSK) in a good position to invest in growth?

Just because a business isn’t making money doesn’t mean the stock will go down. For example, Sky blue uranium Shareholders (CVE: BSK) have performed very well over the past year, with the share price climbing 148%. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.

Given the strong performance of its share price, we believe it is worthwhile for the shareholders of Blue Sky Uranium to consider whether its cash consumption is of concern. 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). 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 Blue Sky Uranium

What is the duration of the Blue Sky Uranium treasury track?

A cash flow trail is defined as the time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. As of September 2021, Blue Sky Uranium had C $ 2.7 million in cash and was debt free. In the past year, its cash consumption amounted to C $ 4.3 million. It therefore had a cash flow track of around 8 months from September 2021. To be frank, this kind of short track puts us on the line, because it indicates that the company must significantly reduce its cash consumption, or raise liquidity imminently. You can see how her cash balance has changed over time in the image below.

TSXV: BSK History of debt to equity November 21, 2021

How does Blue Sky Uranium’s silver consumption change over time?

Blue Sky Uranium has not recorded any revenue in the past year, indicating that it is a start-up company that continues to expand its business. So while we can’t look at sales to understand growth, we can look at changes in cash consumption to understand changes in expenses over time. The surge in money spent 154% year over year certainly puts our nerves to the test. It’s fair to say that some kind of rate of increase cannot be sustained for very long without putting pressure on the balance sheet. Of course, Blue Sky Uranium is a bit wary because of its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can Blue Sky Uranium Easily Raise More Money?

With its cash consumption going in the wrong direction, Blue Sky Uranium shareholders may want to anticipate when the company might need to raise more cash. The issuance of new shares or indebtedness are the most common ways for a listed company to raise more money for its activity. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. By examining a 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 a company’s cash consumption. other year.

Since it has a market capitalization of C $ 48 million, Blue Sky Uranium’s C $ 4.3 million of cash consumption is equivalent to approximately 8.9% of its market value. This is a small proportion, so we think the company would be able to raise more cash to finance its growth, with a slight dilution, or even just to borrow money.

How risky is Blue Sky Uranium’s cash flow situation?

On this analysis of Blue Sky Uranium’s cash burn, we think that its cash burn in relation to its market capitalization was reassuring, while its growing cash burn worries us a little. In summary, we believe that consuming Blue Sky Uranium silver is a risk, based on the factors we have mentioned in this article. On another note, we conducted a thorough investigation of the company and identified 6 warning signs for Blue Sky Uranium (4 shouldn’t be ignored!) Which you should be aware of before investing here.

If you’d rather discover 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 does not have any position in the mentioned stocks.

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