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Is Brainstorm Cell Therapeutics Inc. (NASDAQ:BCLI) Growing Too Fast?

Simply Wall St

Trailing twelve-month data shows us that Brainstorm Cell Therapeutics Inc.'s (NASDAQ:BCLI) earnings loss has accumulated to -US$18.5m. Although some investors expected this, their belief in the path to profitability for Brainstorm Cell Therapeutics may be wavering. The single most important question to ask when you’re investing in a loss-making company is – will it need to raise cash again, and if so, when? Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to raise further funds. This may not always be on good terms, which could hurt current shareholders if the new deal lowers the value of their shares. Looking at Brainstorm Cell Therapeutics’s latest financial data, I will estimate when the company may run out of cash and need to raise more money.

Check out our latest analysis for Brainstorm Cell Therapeutics

What is cash burn?

Currently, Brainstorm Cell Therapeutics has US$2.7m in cash holdings and producing negative free cash flow of -US$14.8m. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Unprofitable companies operating in the exciting, fast-growing biotech industry often face this problem, and Brainstorm Cell Therapeutics is no exception. These businesses operate in a highly competitive environment and face running down its cash holdings too fast in order to keep up with innovation.

NasdaqCM:BCLI Income Statement, September 19th 2019

When will Brainstorm Cell Therapeutics need to raise more cash?

We can measure Brainstorm Cell Therapeutics's ongoing cash expenditure requirements by looking at free cash flow, which I define as cash flow from operations minus fixed capital investment, is a measure of how much cash a company generates/loses each year.

Free cash outflows declined by 36% over the past year, which could be an indication of Brainstorm Cell Therapeutics putting the brakes on ramping up high growth. Given the level of cash left in the bank, if Brainstorm Cell Therapeutics maintained its cash burn rate of -US$14.8m, it could still run out of cash within the next few of months. Although this is a relatively simplistic calculation, and Brainstorm Cell Therapeutics may continue to reduce its costs further or open a new line of credit instead of issuing new shares, the outcome of this analysis still helps us understand how sustainable the Brainstorm Cell Therapeutics operation is, and when things may have to change.

Next Steps:

The risks involved in investing in loss-making Brainstorm Cell Therapeutics means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. The outcome of my analysis suggests that even if the company maintains this rate of cash burn growth, it will run out of cash within the year. This may lead to share price pressure in the near term, should Brainstorm Cell Therapeutics be forced to raise capital to fund its growth. I admit this is a fairly basic analysis for BCLI's financial health. Other important fundamentals need to be considered as well. I suggest you continue to research Brainstorm Cell Therapeutics to get a better picture of the company by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for BCLI’s future growth? Take a look at our free research report of analyst consensus for BCLI’s outlook.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Brainstorm Cell Therapeutics’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2019. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.