In This Article:
This article was originally published on Simply Wall St News
Palantir Technologies ( NYSE:PLTR ) shareholders have done very well over the last year, with the share price soaring by 136%. Even though the company is currently unprofitable, investors are putting a lot of faith in the growth and future value of Palantir. The company just won a US$823m contract from the U.S. Army , and we wanted to examine the cash capacity of the company to withstand expenses until reaching profitability.
Thus, we think it's well worth asking whether Palantir Technologies' cash burn is too risky.
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.
We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for Palantir Technologies
How Long Is Palantir Technologies' Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate.
When Palantir Technologies last reported its balance sheet in June 2021, it had zero debt and cash worth US$2.3b .
In the last year, its cash burn was US$62m. With its current cash balance, and if we hold spending constant, Palantir can have 3 years of operations before it runs out of cash.
Obviously the company will grow and decrease expenses with time, so there really isn't much risk to liquidity.
Is Palantir Technologies' Revenue Growing?
We think that it's fairly positive to see that revenue grew 47% in the last twelve months.
While Palantir Technologies is showing solid revenue growth, 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. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalization, 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).
Palantir Technologies has a market capitalization of US$45b and burnt through -US$62m last year, which is -0.1% of the company's market value. That means it could easily issue a few shares to fund more growth , and might well be in a position to borrow cheaply.
Is There Enough Gas Behind the Stock?
In a situation where investor are excited and hopeful for a company, it is sometimes better to err on the side of overspending, rather than being on a tight budget. With a 3-year cash runway and a US$45b market cap, Palantir might want to consider starting some more frontier projects in order to reinforce revenue growth.