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, 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. 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 should Intellicheck (NASDAQ:IDN) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
When Might Intellicheck Run Out Of Money?
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. When Intellicheck last reported its balance sheet in December 2019, it had zero debt and cash worth US$3.4m. Looking at the last year, the company burnt through US$1.9m. So it had a cash runway of approximately 22 months from December 2019. Notably, however, analysts think that Intellicheck will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Intellicheck Growing?
Intellicheck managed to reduce its cash burn by 57% over the last twelve months, which suggests it's on the right flight path. And there's no doubt that the inspiriting revenue growth of 73% assisted in that improvement. Overall, we'd say its growth is rather impressive. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Hard Would It Be For Intellicheck To Raise More Cash For Growth?
There's no doubt Intellicheck seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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).
Intellicheck has a market capitalisation of US$46m and burnt through US$1.9m last year, which is 4.1% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
Is Intellicheck's Cash Burn A Worry?
It may already be apparent to you that we're relatively comfortable with the way Intellicheck is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. Its cash runway wasn't quite as good, but was still rather encouraging! There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. An in-depth examination of risks revealed 2 warning signs for Intellicheck that readers should think about before committing capital to this stock.
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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