Companies Like OptimizeRx (NASDAQ:OPRX) Can Afford To Invest In Growth
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, OptimizeRx (NASDAQ:OPRX) shareholders have done very well over the last year, with the share price soaring by 326%. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
In light of its strong share price run, we think now is a good time to investigate how risky OptimizeRx's cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for OptimizeRx
How Long Is OptimizeRx's Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When OptimizeRx last reported its balance sheet in March 2021, it had zero debt and cash worth US$82m. Looking at the last year, the company burnt through US$1.1m. So it had a very long cash runway of many years from March 2021. Notably, however, analysts think that OptimizeRx will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.
How Well Is OptimizeRx Growing?
Given our focus on OptimizeRx's cash burn, we're delighted to see that it reduced its cash burn by a nifty 86%. This reduction was no doubt supported by its strong revenue growth of 74% in the same period. Overall, we'd say its growth is rather impressive. While the past is always worth studying, it is the future that matters most of all. 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 OptimizeRx To Raise More Cash For Growth?
We are certainly impressed with the progress OptimizeRx 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.
OptimizeRx's cash burn of US$1.1m is about 0.1% of its US$819m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.
So, Should We Worry About OptimizeRx's Cash Burn?
As you can probably tell by now, we're not too worried about OptimizeRx's cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. But it's fair to say that its cash burn relative to its market cap was also very reassuring. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Taking an in-depth view of risks, we've identified 3 warning signs for OptimizeRx that you should be aware of before investing.
Of course OptimizeRx may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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. 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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