As the USD $9.07M market cap Hemispherx Biopharma Inc (AMEX:HEB) released another year of negative earnings, investors may be on edge waiting for breakeven. The single most important question to ask when you’re investing in a loss-making company is – will they need to raise cash again, and if so, when? Below, I’ve analysed the most recent financial data to help answer this question. View our latest analysis for Hemispherx Biopharma
What is cash burn?
Currently, HEB has $3.21M in cash holdings and producing negative cash flows from its day-to-day activities of -$10.39M. The riskiest factor facing investors of HEB is the potential for the company to run out of cash without the ability to raise more money. Furthermore, it is not uncommon to find loss-makers in an industry such as biotech. The industry is highly competitive, with companies racing to invest in innovation at the risk of burning through its cash too fast.
When will HEB need to raise more cash?
Opex declined by 9.18% over the past year, which could be an indication of HEB putting the brakes on ramping up high growth. However, even with declining costs, the current level of cash is not enough to sustain HEB’s operations and the company may need to come to market to raise more capital within the year. Although this is a relatively simplistic calculation, and HEB may continue to reduce its costs further 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? The outcome of this analysis should shed some light on HEB’s cash situation and the risks you may or may not have been aware of as a shareholder of the company. 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? This analysis isn’t meant to deter you from buying HEB, but rather, to help you understand the risks involved investing in loss-making companies. The cash burn analysis result indicates a cash constraint for HEB, due to its current level of cash reserves. An opportunity may exist for you to enter into the stock at an attractive price, should HEB come to market to fund its operations.
Good management manages cash well – have a peek at HEB’s CEO experience and the tenure of the board here. If risky loss-making stocks do not appeal to you, see 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.