Will Applied DNA Sciences (NASDAQ:APDN) Spend Its Cash Wisely?
Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should Applied DNA Sciences (NASDAQ:APDN) shareholders be worried about its 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. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for Applied DNA Sciences
Does Applied DNA Sciences Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Applied DNA Sciences last reported its balance sheet in March 2022, it had zero debt and cash worth US$6.5m. In the last year, its cash burn was US$12m. That means it had a cash runway of around 7 months as of March 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Applied DNA Sciences Growing?
It was fairly positive to see that Applied DNA Sciences reduced its cash burn by 26% during the last year. But it was the operating revenue growth of 199% that really shone. We think it is growing rather well, upon reflection. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Hard Would It Be For Applied DNA Sciences To Raise More Cash For Growth?
Applied DNA Sciences seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.
Applied DNA Sciences' cash burn of US$12m is about 46% of its US$25m market capitalisation. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.
How Risky Is Applied DNA Sciences' Cash Burn Situation?
Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Applied DNA Sciences' revenue growth was relatively promising. Summing up, we think the Applied DNA Sciences' cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 5 warning signs for Applied DNA Sciences you should be aware of, and 1 of them makes us a bit uncomfortable.
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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.
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