Invion (ASX:IVX) Is In A Good Position To Deliver On Growth Plans
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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, the natural question for Invion (ASX:IVX) shareholders is whether they should be concerned by its rate of 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 Invion
When Might Invion Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2022, Invion had AU$8.0m in cash, and was debt-free. Looking at the last year, the company burnt through AU$5.5m. Therefore, from December 2022 it had roughly 18 months of cash runway. 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. We should note, however, that if we extrapolate recent trends in its cash burn, then its cash runway would get a lot longer. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Invion Growing?
Invion boosted investment sharply in the last year, with cash burn ramping by 97%. While that isa little concerning at a glance, the company has a track record of recent growth, evidenced by the impressive 65% growth in revenue, over the very same year. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Invion is building its business over time.
How Hard Would It Be For Invion To Raise More Cash For Growth?
Even though it seems like Invion is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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).
Invion has a market capitalisation of AU$45m and burnt through AU$5.5m last year, which is 12% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.
How Risky Is Invion's Cash Burn Situation?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Invion's revenue growth was relatively promising. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Invion (1 can't be ignored!) that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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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