How Long Will Catasys Inc’s (CATS) Cash Last?
Catasys Inc (NASDAQ:CATS) continues its loss-making streak, announcing a -$16.77M earnings for its latest financial year ending. Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to come back to market for additional capital raising. This may not always be on their own terms, which could hurt current shareholders if the new deal lowers the value of their shares. Today I’ve examined CATS’s financial data to roughly assess when the company may need to raise new capital. Check out our latest analysis for Catasys
What is cash burn?
Currently, CATS has $9.22M in cash holdings and producing negative cash flows from its day-to-day activities of -$5.99M. The biggest threat facing CATS’s investor is the company going out of business when it runs out of money and cannot raise any more capital. Unprofitable companies operating in the high-growth healthcare industry often face this problem, and CATS is no exception. The industry is highly competitive, with companies racing to invest in innovation at the risk of burning through its cash too fast.
When will CATS need to raise more cash?
Opex (excluding one-offs) grew by 7.09% over the past year, which is fairly normal for a small-cap. This means that, if CATS continues to grow its opex at this rate, given how much money it currently has in the bank, it will actually need to raise capital again in within the next 11 months! Furthermore, even if CATS kept its opex level at the current $10.1M, it will still be coming to market in the next couple of months. Even though this is analysis is fairly basic, and CATS still can cut its overhead in the near future, or raise debt capital instead of coming to equity markets, the analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
What this means for you:
Are you a shareholder? Hopefully, the analysis has shed some light on the risks you should bear in mind as a shareholder of CATS, in particular, its tight cash runway moving forward. 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.
Are you a potential investor? Loss-making companies are a risky play, especially those that are still ramping up its opex. Though, this shouldn’t discourage you from considering entering the stock in the future. The cash burn analysis result indicates a cash constraint for CATS, due to its current opex growth rate and its level of cash reserves. The potential equity raising resulting from this means you could potentially get a better deal on the share price when the company raises capital next.
An experienced management team on the helm increases our confidence in the business – take a look at who sits on CATS’s board and the CEO’s back ground and experience here. If you believe you should cushion your portfolio with something less risky, scroll through my list of highly profitable companies to add to your portfolio..
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
