We Think Geospace Technologies (NASDAQ:GEOS) Can Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Geospace Technologies (NASDAQ:GEOS) 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’.

View our latest analysis for Geospace Technologies

A company’s cash runway is calculated by dividing its cash hoard by its cash burn. In September 2024, Geospace Technologies had US$37m in cash, and was debt-free. Looking at the last year, the company burnt through US$21m. So it had a cash runway of approximately 21 months from September 2024. While that cash runway isn’t too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. The image below shows how its cash balance has been changing over the last few years.

We’re hesitant to extrapolate on the recent trend to assess its cash burn, because Geospace Technologies actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. While it’s not that amazing, we still think that the 8.9% increase in revenue from operations was a positive. Of course, we’ve only taken a quick look at the stock’s growth metrics, here. You can take a look at how Geospace Technologies has developed its business over time by checking this visualization of its revenue and earnings history.

Notwithstanding Geospace Technologies’ revenue growth, it is still important to consider how it could raise more money, if it needs to. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

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