FingerMotion Inc (NASDAQ: FNGR) was targeted by a short and distort article by Simply Wall Street that indicated their cash burn rate was concerning and that the company would need to raise more money or face insolvency risk. If this article didn’t have such a dramatic impact on the stock short term this would have been a laughable moment. Unfortunately for longs the timing was such that the stock was at the top of a major technical channel and about ready to break out according to YouTube influencer Avid Trader.
Flawed Cash Burn Analysis
When looking at the cash component of the business this distort artist seems to have no idea what the company does. The company uses its cash hoard to fund the receivables of the prepaid mobile recharge business. This is very capital intensive and a case could be made that if they aren’t employing maximum cash then they aren’t maximizing revenues. So looking at cash burn has zero utility in understanding the financial performance of the company. Another point is that the short doesn't take into account some of the one time uses of cash like the massive loan payment that they made to pay off Lind Partners. The analysis is so shoddy that they use the prior year burn rate to forecast future year. You have to give them an A in the category of cherry picking data.
No Bankruptcy Threat
The other notion that they attempt to make is that FNGR is on the verge of bankruptcy if they dont get cash in the door soon. The company has cash and receivables and then prepaid deposits. All of these asset classes are are very safe and turn into cash quickly. All investors need to do is look at the balance sheet and ask themselves if this looks like a company on the verge of bankruptcy. The truth is in black and white and not is some short and distort article. Based on the last quarterly report the cash burn rate was about $270,000 and has been improving quarter over quarter. To make math simple assume FNGR guidance to be cash flow positive this year is wrong and instead of 6 months it takes 12 months. That translates into $3.0 million would be needed assuming $250K/month. Look at the balance sheet above and its clear that FNGR has no issues.
No Immediate Need for Cash
The short continues his argument that the company might have a hard time raising money citing that their high cash burn rate will signal to investors that they need to raise more money and that signal will put downward price pressure on the price. If the company needed cash then why on earth did they repay the Lind note. This was a toxic lender! The author doesn't get into this detail because quite frankly they don't have a clue about what they are analyzing.
Investment Summary
FNGR is benefitting from the Chinese economic stimulus and the COVID reopening effect from China. This nonsense about cash burn rate is just that, nonsense. It's pretty clear the article was designed to shake out some investors and keep downward price pressure. FNGR has growing revenue of 90% that not even the short could deny. The company is really marking time until the next quarterly report which should continue to show this exponential revenue growth in their mobile recharge business. The company has made it clear that they expect a profit by year end. Could it be this quarter?
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. A guest contributor wrote this article and solely reflects his opinions.
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