We Think Co-Diagnostics (NASDAQ:CODX) Needs To Drive Business Growth Carefully
We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So should Co-Diagnostics (NASDAQ:CODX) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
See our latest analysis for Co-Diagnostics
How Long Is Co-Diagnostics' Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In December 2023, Co-Diagnostics had US$59m in cash, and was debt-free. Looking at the last year, the company burnt through US$23m. That means it had a cash runway of about 2.5 years as of December 2023. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.
Can Co-Diagnostics Raise More Cash Easily?
Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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).
Co-Diagnostics has a market capitalisation of US$36m and burnt through US$23m last year, which is 64% of the company's market value. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.
How Risky Is Co-Diagnostics' Cash Burn Situation?
Because Co-Diagnostics is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. However, it is fair to say that its cash runway gave us comfort. So while we're not too worried about its cash burn at the moment, we do think shareholders should monitor it closely. On another note, we conducted an in-depth investigation of the company, and identified 2 warning signs for Co-Diagnostics (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.
