Advertisement
U.S. markets close in 4 hours 47 minutes
  • S&P 500

    5,251.65
    +3.16 (+0.06%)
     
  • Dow 30

    39,734.52
    -25.56 (-0.06%)
     
  • Nasdaq

    16,393.09
    -6.43 (-0.04%)
     
  • Russell 2000

    2,129.41
    +15.06 (+0.71%)
     
  • Crude Oil

    82.71
    +1.36 (+1.67%)
     
  • Gold

    2,234.90
    +22.20 (+1.00%)
     
  • Silver

    25.00
    +0.25 (+1.00%)
     
  • EUR/USD

    1.0798
    -0.0032 (-0.29%)
     
  • 10-Yr Bond

    4.1940
    -0.0020 (-0.05%)
     
  • GBP/USD

    1.2626
    -0.0012 (-0.10%)
     
  • USD/JPY

    151.2950
    +0.0490 (+0.03%)
     
  • Bitcoin USD

    71,386.20
    +1,648.02 (+2.36%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,972.21
    +40.23 (+0.51%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Is Digimarc (NASDAQ:DMRC) In A Good Position To Invest In Growth?

We can readily understand why investors are attracted to unprofitable companies. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Digimarc (NASDAQ:DMRC) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Digimarc

How Long Is Digimarc's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2019, Digimarc had cash of US$37m and no debt. In the last year, its cash burn was US$24m. So it had a cash runway of approximately 18 months from December 2019. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. Depicted below, you can see how its cash holdings have changed over time.

NasdaqGS:DMRC Historical Debt April 28th 2020
NasdaqGS:DMRC Historical Debt April 28th 2020

How Well Is Digimarc Growing?

At first glance it's a bit worrying to see that Digimarc actually boosted its cash burn by 3.8%, year on year. The revenue growth of 8.5% gives a ray of hope, at the very least. Considering both these factors, we're not particularly excited by its growth profile. 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 Easily Can Digimarc Raise Cash?

While Digimarc seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel 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 to fund growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Digimarc has a market capitalisation of US$200m and burnt through US$24m last year, which is 12% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Digimarc's Cash Burn A Worry?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Digimarc's cash burn relative to its market cap 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 Digimarc's situation. Taking a deeper dive, we've spotted 4 warning signs for Digimarc you should be aware of, and 1 of them can't be ignored.

Of course Digimarc 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.

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.

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. Thank you for reading.

Advertisement