Here's Why We're A Bit Worried About Sarcos Technology and Robotics' (NASDAQ:STRC) Cash Burn Situation
There's no doubt that money can be made by owning shares of unprofitable businesses. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So should Sarcos Technology and Robotics (NASDAQ:STRC) 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'. Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for Sarcos Technology and Robotics
When Might Sarcos Technology and Robotics Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Sarcos Technology and Robotics last reported its September 2023 balance sheet in November 2023, it had zero debt and cash worth US$55m. Importantly, its cash burn was US$83m over the trailing twelve months. Therefore, from September 2023 it had roughly 8 months of cash runway. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.
How Well Is Sarcos Technology and Robotics Growing?
At first glance it's a bit worrying to see that Sarcos Technology and Robotics actually boosted its cash burn by 21%, year on year. The silver lining is that revenue was up 22%, showing the business is growing at the top line. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. In reality, this article only makes a short study of the company's growth data. You can take a look at how Sarcos Technology and Robotics has developed its business over time by checking this visualization of its revenue and earnings history.
How Hard Would It Be For Sarcos Technology and Robotics To Raise More Cash For Growth?
Since Sarcos Technology and Robotics has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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$27m, Sarcos Technology and Robotics' US$83m in cash burn equates to about 303% of its market value. Given just how high that expenditure is, relative to the company's market value, we think there's an elevated risk of funding distress, and we would be very nervous about holding the stock.
So, Should We Worry About Sarcos Technology and Robotics' Cash Burn?
On this analysis of Sarcos Technology and Robotics' cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. After considering the data discussed in this article, we don't have a lot of confidence that its cash burn rate is prudent, as it seems like it might need more cash soon. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Sarcos Technology and Robotics (of which 3 are significant!) you should know about.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
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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.
