Just because a business does not make any money, does not mean that the stock will go down. By way of example, Luxey International (Holdings) (HKG:8041) has seen its share price rise 227% over the last year, delighting many shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

In light of its strong share price run, we think now is a good time to investigate how risky Luxey International (Holdings)'s cash burn is. 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.

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When Might Luxey International (Holdings) 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. In December 2024, Luxey International (Holdings) had HK$11m in cash, and was debt-free. Importantly, its cash burn was HK$1.9m over the trailing twelve months. So it had a cash runway of about 5.5 years from December 2024. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.

Check out our latest analysis for Luxey International (Holdings)

Is Luxey International (Holdings)'s Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Luxey International (Holdings) actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Although it's hardly brilliant growth, it's good to see the company grew revenue by 2.9% in the last year. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Luxey International (Holdings) has developed its business over time by checking this visualization of its revenue and earnings history.

Can Luxey International (Holdings) Raise More Cash Easily?

While Luxey International (Holdings) 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. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Since it has a market capitalisation of HK$648m, Luxey International (Holdings)'s HK$1.9m in cash burn equates to about 0.3% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is Luxey International (Holdings)'s Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Luxey International (Holdings) is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. On this analysis its revenue growth was its weakest feature, but we are not concerned about it. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash. Separately, we looked at different risks affecting the company and spotted 2 warning signs for Luxey International (Holdings) (of which 1 shouldn't be ignored!) you should know about.

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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.