Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. But while the success stories are well known, investors shouldn’t ignore the many, many unprofitable companies that simply burn all their money and crash.
So the natural question for HCW Biologicals (NASDAQ:HCWB) shareholders is whether they should be concerned about its cash burn rate. In this report, we will consider the company’s negative annual free cash flow, which we will now refer to as “cash burn”. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.
Does HCW Biologics have a long cash trail?
A cash trail is defined as the length of time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. When HCW Biologics last released its balance sheet in September 2021, it had no debt and cash worth $40 million. Last year, its cash burn was $11 million. Therefore, as of September 2021, it had 3.6 years of cash trail. A track of this length provides the company with the time and space it needs to grow its business. Below you can see how its liquidity has changed over time.
How is HCW Biologics growing?
Some investors might find it troubling that HCW Biologics is actually increasing its cash consumption, which has increased by 12% over the past year. In light of that, the flat year-over-year operating leverage is a little off-putting. Given these two factors, we’re not particularly excited about its growth profile. While the past is always worth studying, it is the future that matters most. For this reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can HCW Biologics raise more money easily?
While HCW Biologics appears to be in a pretty good position, it’s still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares or going into debt are the most common ways for a listed company to raise more funds for its business. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise funds and finance their growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.
HCW Biologics has a market capitalization of $79 million and spent $11 million last year, or 14% of the company’s market value. Given this situation, it’s fair to say that the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
Is HCW Biologics’ cash burn a concern?
Even though its increasing consumption of cash makes us a bit nervous, we are bound to mention that we thought HCW Biologics’ cash lead was quite 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 concerned. It is important for readers to be aware of the risks that can affect company operations, and we have selected 3 warning signs for HCW Biologics investors need to know when investing in the stock.
Sure, you might find a fantastic investment by looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analyst forecasts)
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