13-05-2025
We're Not Worried About Citi Trends' (NASDAQ:CTRN) Cash Burn
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should Citi Trends (NASDAQ:CTRN) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
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A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In February 2025, Citi Trends had US$61m in cash, and was debt-free. In the last year, its cash burn was US$14m. That means it had a cash runway of about 4.4 years as of February 2025. Importantly, though, analysts think that Citi Trends will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. The image below shows how its cash balance has been changing over the last few years.
Check out our latest analysis for Citi Trends
It was fairly positive to see that Citi Trends reduced its cash burn by 43% during the last year. Having said that, the flat operating revenue was a bit mundane. On balance, we'd say the company is improving over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
We are certainly impressed with the progress Citi Trends has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. 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 looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
Since it has a market capitalisation of US$182m, Citi Trends' US$14m in cash burn equates to about 7.7% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
As you can probably tell by now, we're not too worried about Citi Trends' cash burn. 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. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Notably, our data indicates that Citi Trends insiders have been trading the shares. You can discover if they are buyers or sellers by clicking on this link.
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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
