Cardiovascular Systems (NASDAQ:CSII) Is In A Good Position To Deliver On Growth Plans
Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for Cardiovascular Systems (NASDAQ:CSII) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for Cardiovascular Systems
How Long Is Cardiovascular Systems' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Cardiovascular Systems last reported its balance sheet in June 2022, it had zero debt and cash worth US$160m. In the last year, its cash burn was US$28m. Therefore, from June 2022 it had 5.6 years of cash runway. 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. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Cardiovascular Systems Growing?
One thing for shareholders to keep front in mind is that Cardiovascular Systems increased its cash burn by 489% in the last twelve months. As if that's not bad enough, the operating revenue also dropped by 8.8%, making us very wary indeed. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. 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.
Can Cardiovascular Systems Raise More Cash Easily?
Even though it seems like Cardiovascular Systems is developing its business nicely, we still like to consider how easily it could raise more money to accelerate 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. 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$530m, Cardiovascular Systems' US$28m in cash burn equates to about 5.4% 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.
So, Should We Worry About Cardiovascular Systems' Cash Burn?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Cardiovascular Systems' cash runway was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Cardiovascular Systems' situation. Taking an in-depth view of risks, we've identified 1 warning sign for Cardiovascular Systems that you should be aware of before investing.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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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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