As the US$26m market cap Lightbridge Corporation (NASDAQ:LTBR) released another year of negative earnings, investors may be on edge waiting for breakeven. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. 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. Lightbridge may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question.
What is cash burn?
Currently, Lightbridge has US$21m in cash holdings and producing negative free cash flow of -US$7.3m. The biggest threat facing Lightbridge investors is the company going out of business when it runs out of money and cannot raise any more capital. Lightbridge operates in the research and consulting services industry, which delivered positive earnings in the past year. This means, on average, its industry peers are profitable. Lightbridge runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Lightbridge need to raise more cash?
One way to measure the cost to Lightbridge of keeping the business running, is by using free cash flow (which I define as cash flow from operations minus fixed capital investment).
Free cash outflows declined by 13% over the past year, which could be an indication of Lightbridge putting the brakes on ramping up high growth. Though, if the company kept its cash burn level at -US$7.3m, it may not need to raise capital for another 2.9 years. Although this is a relatively simplistic calculation, and Lightbridge may continue to reduce its costs further or borrow money instead of raising new equity capital, this analysis still helps us understand how sustainable the Lightbridge operation is, and when things may have to change.
Investors shouldn’t expect Lightbridge to raise capital anytime soon, according to the outcome of this analysis. Though, there are many factors that we haven’t considered in our basic analysis, this outcome gives a relatively broad overview of the company’s cash financial situation. In addition to this analysis, I suggest you take a look at their expected revenue growth to determine the timing of future profitability as well. Keep in mind I haven't considered other factors such as how LTBR is expected to perform in the future. I recommend you continue to research Lightbridge to get a more holistic view of the company by looking at:
- Historical Performance: What has LTBR's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Lightbridge’s board and the CEO’s back ground.
- 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.
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