We’re interested to see how Paycor HCM (NASDAQ:PYCR) uses its cash hoard to grow

Just because a company isn’t making money doesn’t mean the stock will go down. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. But while the success stories are well known, investors shouldn’t ignore the many, many unprofitable companies that simply burn all their money and crash.

So the natural question for Paycor HCM (NASDAQ:PYCR) shareholders is whether they should be concerned about its cash burn rate. For the purposes of this article, cash burn is the annual rate at which an unprofitable business spends money to finance its growth; its negative free cash flow. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.

Does Paycor HCM have a long cash trail?

A company’s cash track is the time it would take to deplete its cash reserves at its current rate of cash consumption. As of March 2022, Paycor HCM had $134 million in cash and no debt. Last year, its cash burn was $41 million. It therefore had a cash trail of around 3.3 years from March 2022. Importantly, however, analysts believe that Paycor HCM will break even before then. In this case, he may never reach the end of his cash trail. Below you can see how its liquidity has changed over time.

NasdaqGS: PYCR Debt to Equity History August 16, 2022

How is Paycor HCM growing?

It was quite amazing to see that Paycor HCM increased its cash burn by 864% over the last year. But the silver lining is that operating revenue grew 21% during that time. Given these two metrics, we’re a bit concerned about how the business is growing. While the past is always worth studying, it is the future that matters most. You might want to take a look at the company’s expected growth over the next few years.

How difficult would it be for Paycor HCM to raise more cash for growth?

While Paycor HCM appears to be in a pretty good position, it’s still worth considering how easily it could raise more cash, if only to fuel faster growth. Companies can raise capital either through debt or equity. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise funds and finance their growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.

Paycor HCM’s cash burn of US$41 million represents approximately 0.7% of its market capitalization of US$5.4 billion. So he could almost certainly borrow a little to fund another year’s growth, or he could easily raise cash by issuing a few shares.

Is Paycor HCM’s cash burn a concern?

As you can probably tell by now, we’re not too worried about Paycor HCM’s cash burn. In particular, we think its cash trail stands out as proof that the company is on top of spending. While it must be admitted that its growing cash burn is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to cash burn. It is clearly very positive to see that analysts expect the company to break even soon. Considering all the factors in this report, we are not at all worried about its cash burn, as the company appears to be well capitalized to spend as needed. A thorough examination of the risks revealed 1 warning sign for Paycor HCM readers should consider before committing capital to this title.

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

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