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Should You Worry About Milestone Scientific Inc.'s (NYSEMKT:MLSS) Cash Runway?

Simply Wall St

Trailing twelve-month data shows us that Milestone Scientific Inc.'s (NYSEMKT:MLSS) earnings loss has accumulated to -US$6.0m. Although some investors expected this, their belief in the path to profitability for Milestone Scientific may be wavering. Savvy investors should always reassess the situation of loss-making companies frequently, and keep informed about whether or not these businesses are in a strong cash position. Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to raise further funds. This may not always be on good terms, which could hurt current shareholders if the new deal lowers the value of their shares. Today I’ve examined Milestone Scientific’s financial data from its most recent earnings update, to roughly assess when the company may need to raise new capital.

Check out our latest analysis for Milestone Scientific

What is cash burn?

Milestone Scientific currently has US$2.3m in the bank, with negative free cash flow of -US$744.6k. The riskiest factor facing investors of Milestone Scientific is the potential for the company to run out of cash without the ability to raise more money. Not surprisingly, it is more common to find unprofitable companies in the fast-growth healthcare industry. These companies face the trade-off between running the risk of depleting its cash reserves too fast, or falling behind competition on innovation and gaining market share by investing too slowly.

AMEX:MLSS Income Statement, September 19th 2019

When will Milestone Scientific need to raise more cash?

We can measure Milestone Scientific's ongoing cash expenditure requirements by looking at free cash flow, which I define as cash flow from operations minus fixed capital investment, is a measure of how much cash a company generates/loses each year.

In the past year, free cash outflows (excluding one-offs) rose by 49%, up sharply on the prior year. This means that - given its current cash balance - if Milestone Scientific continues to grow its cash burn at this rate, it may need to raise capital again in 1.7 years. Though, if the company kept its burn rate level at -US$744.6k, it may not need to raise capital for another couple of years. Even though this is analysis is fairly basic, and Milestone Scientific still can cut its overhead in the near future, or open a new line of credit instead of issuing new shares, the outcome of this analysis still helps us understand how sustainable the Milestone Scientific operation is, and when things may have to change.

Next Steps:

This analysis isn’t meant to deter you from Milestone Scientific, but rather, to help you better understand the risks involved investing in loss-making companies. The outcome of my analysis suggests that if the company maintains the rate of cash burn growth, it will run out of cash in the upcoming years. An opportunity may exist for you to enter into the stock at a lower price, should Milestone Scientific have to raise money to continue operating. This is only a rough assessment of financial health, and MLSS likely also has company-specific issues impacting its cash management decisions. You should continue to research Milestone Scientific to get a more holistic view of the company by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for MLSS’s future growth? Take a look at our free research report of analyst consensus for MLSS’s outlook.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Milestone Scientific’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2019. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.