Is EVgo (NASDAQ:EVGO) In A Good Position To Invest In 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 Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we’d take a look at whether EVgo (NASDAQ:EVGO) shareholders should be worried about its cash burn. In this report, we will consider the company’s annual negative free cash flow, henceforth referring to it as the ‘cash burn’. Let’s start with an examination of the business’ cash, relative to its cash burn.

See our latest analysis for EVgo

When Might EVgo Run Out Of Money?

You can calculate a company’s cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at September 2022, EVgo had cash of US$301m and no debt. In the last year, its cash burn was US$228m. So it had a cash runway of approximately 16 months from September 2022. Importantly, analysts think that EVgo will reach cashflow breakeven in 4 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. You can see how its cash balance has changed over time in the image below.

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How Well Is EVgo Growing?

One thing for shareholders to keep front in mind is that EVgo increased its cash burn by 250% in the last twelve months. While that isa little concerning at a glance, the company has a track record of recent growth, evidenced by the impressive 78% growth in revenue, over the very same year. Considering both these factors, we’re not particularly excited by its growth profile. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For EVgo To Raise More Cash For Growth?

While EVgo seems to be in a fairly good position, it’s still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company’s annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

EVgo has a market capitalisation of US$1.6b and burnt through US$228m last year, which is 15% of the company’s market value. As a result, we’d venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is EVgo’s Cash Burn Situation?

On this analysis of EVgo’s cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Even though we don’t think it has a problem with its cash burn, the analysis we’ve done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. An in-depth examination of risks revealed 2 warning signs for EVgo that readers should think about before committing capital to this stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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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