Sunworks Inc (NASDAQ:SUNW) continues its loss-making streak, announcing a -$11.58M earnings for its latest financial year ending. 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. Below, I’ve analysed the most recent financial data to help answer this question. Check out our latest analysis for Sunworks
What is cash burn?
Currently, SUNW has $4.17M in cash holdings and producing negative cash flows from its day-to-day activities of -$3.03M. The biggest threat facing SUNW’s investor is the company going out of business when it runs out of money and cannot raise any more capital. SUNW operates in the electrical components and equipment industry, which has an average EPS of $3.07, meaning the majority of SUNW’s peers are profitable. SUNW faces the trade-off between running the risk of depleting its cash reserves too fast, or risk falling behind its profitable competitors by investing too slowly.
When will SUNW need to raise more cash?
Opex (excluding one-offs) grew by 62.10% over the past year, which is considerably high. Not surprisingly, if SUNW continues to ramp up expenditure at this rate for the upcoming year, it’ll likely need to come to market within the next few months, given the its current level of cash reserves. Moreover, even if SUNW kept its opex level at $27M, it will still have to come to market within the next year. Although this is a relatively simplistic calculation, and SUNW may reduce its costs or raise debt capital instead of coming to equity markets, the analysis still helps us understand how sustainable the SUNW’s operation is, and when things may have to change.
What this means for you:
Are you a shareholder? If SUNW makes up a reasonable portion of your portfolio, it’s always wise to consider cushioning your holdings with less risky, profitable stocks. The outcome of this analysis should shed some light on SUNW’s cash situation and the risks you may or may not have been aware of as a shareholder of the company. Now that we’ve accounted for opex growth, you should also look at expected revenue growth in order to gauge when the company may become breakeven.
Are you a potential investor? This analysis isn’t meant to deter you from buying SUNW, but rather, to help you understand the risks involved investing in loss-making companies. The cash burn analysis result indicates a cash constraint for SUNW, due to its high opex growth and its level of cash reserves. An opportunity may exist for you to enter into the stock at an attractive price, should SUNW come to market to fund its operations.
An experienced management team on the helm increases our confidence in the business – take a look at who sits on SUNW’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.