We're Hopeful That CollPlant Biotechnologies (NASDAQ:CLGN) Will Use Its Cash Wisely
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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should CollPlant Biotechnologies (NASDAQ:CLGN) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
View our latest analysis for CollPlant Biotechnologies
Does CollPlant Biotechnologies Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When CollPlant Biotechnologies last reported its balance sheet in March 2022, it had zero debt and cash worth US$41m. In the last year, its cash burn was US$14m. Therefore, from March 2022 it had 3.0 years of cash runway. A runway of this length affords the company the time and space it needs to develop the business. Depicted below, you can see how its cash holdings have changed over time.
Is CollPlant Biotechnologies' Revenue Growing?
Given that CollPlant Biotechnologies actually had positive free cash flow last year, before burning cash this year, we'll focus on its operating revenue to get a measure of the business trajectory. The bad news for shareholders is that operating revenue actually plummeted 94% in the last year, which is a real concern in our view. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how CollPlant Biotechnologies has developed its business over time by checking this visualization of its revenue and earnings history.
How Hard Would It Be For CollPlant Biotechnologies To Raise More Cash For Growth?
Since its revenue growth is moving in the wrong direction, CollPlant Biotechnologies shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. 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).
Since it has a market capitalisation of US$92m, CollPlant Biotechnologies' US$14m in cash burn equates to about 15% of its market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
So, Should We Worry About CollPlant Biotechnologies' Cash Burn?
Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought CollPlant Biotechnologies' cash runway was relatively promising. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 4 warning signs for CollPlant Biotechnologies that investors should know when investing in the stock.
Of course CollPlant Biotechnologies may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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.