Business growth

We think Enlivex Therapeutics (NASDAQ:ENLV) needs to carefully drive its business growth

We can easily understand why investors are attracted to unprofitable companies. For example, although posted losses for many years after it listed, if you had bought and held the stock since 1999, you would have made a fortune. 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.

Given this risk, we thought we would examine whether Enlivex Therapeutic (NASDAQ:ENLV) shareholders should be concerned about its cash burn. In this report, we will consider the company’s negative annual free cash flow, which we will now refer to as “cash burn”. Let’s start with a review of the company’s cash flow, relative to its cash burn.

How long does the Enlivex Therapeutics cash trail last?

You can calculate a company’s cash trail by dividing the amount of cash it has on hand by the rate at which it spends that money. As of June 2022, Enlivex Therapeutics had cash of US$62 million and no debt. Importantly, its cash burn was US$29 million over the last twelve months. So it had a cash trail of around 2.2 years as of June 2022. Arguably, that’s a conservative and reasonable length of runway to have. You can see how his cash balance has changed over time in the image below.

NasdaqCM: History of Debt to Equity ENLV October 7, 2022

How is Enlivex Therapeutics cash burn changing over time?

Since Enlivex Therapeutics is not currently generating revenue, we consider it to be a start-up business. So, while we can’t look to sales to understand growth, we can look at cash burn trends to understand spending trends over time. Over the past twelve months, its cash burn has actually increased by 78%. While this increased spending is undoubtedly intended to drive growth, if the trend continues, the company’s cash trail will shrink very quickly. 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.

How difficult would it be for Enlivex Therapeutics to raise more funds for growth?

Although Enlivex Therapeutics has a strong cash trail, its cash burn trajectory may cause some shareholders to think ahead to when the company might need to raise more cash. 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. We can compare a company’s cash burn to its market capitalization to get an idea of ​​how many new shares a company would need to issue to fund a year’s operations.

With a market capitalization of $82 million, Enlivex Therapeutics’ cash burn of $29 million equates to approximately 35% of its market value. This is not trivial, and if the company were to sell enough stock to fund another year’s growth at the current share price, you would likely see some pretty costly dilution.

So should we be worried about Enlivex Therapeutics’ cash burn?

Even though its increasing consumption of cash makes us a bit nervous, we are bound to mention that we thought Enlivex Therapeutics’ cash lead was quite promising. We don’t think its cash burn is particularly problematic, but after considering the range of factors discussed in this article, we think shareholders should monitor its evolution over time. Taking a deeper dive, we spotted 4 warning signs for Enlivex Therapeutics you should be aware of, and 2 of them are potentially serious.

Sure Enlivex Therapeutics may not be the best stock to buy. So you might want to see this free set of companies with high return on equity, Where this list of stocks that insiders buy.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.