We can easily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service company Salesforce.com has lost money for years while growing recurring revenue, you would have done very well if you had owned shares since 2005. Nevertheless, only a fool would ignore the risk of a loss-making company using up its cash too quickly.
Given this risk, we thought we’d see if that was the case Intellicheck (NASDAQ:IDN) shareholders should be concerned about cash burn. For the purposes of this article, we’ll define cash burn as the amount of money the company spends each year to finance its growth (also called negative free cash flow). We start by comparing cash burn to cash reserves to calculate cash runway.
Check out our latest analysis for Intellicheck
A company’s cash runway is the amount of time it takes to burn through its cash reserves at its current cash burn rate. As of September 2024, Intellicheck had $5.7 million in cash and was debt-free. Looking at the last year, the company burned through $3.2 million. That means it had about 21 months of cash flow as of September 2024. Importantly, though, analysts believe Intellicheck will reach breakeven cash flow before then. In that case, it may never reach the end of its cash runway. Below you can see how cash positions have changed over time.
At first glance, it’s a bit concerning to see that Intellicheck has increased its cash burn by 8.1% year over year. At least sales were up 5.2% over the period, even if they weren’t up much. Given both of these factors, we are not particularly enthusiastic about the growth profile. However, it is clear that the crucial factor is whether the company will grow its business in the future. So you might want to take a look at how much the company is expected to grow in the coming years.
While Intellicheck seems to be in a pretty good position, it’s still worth considering how easily it could raise more money, even just to fuel faster growth. Generally, a publicly traded company can raise new cash by issuing stock or taking on debt. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise money and finance growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company going for another year (at the same burn rate).
Intellicheck’s cash burn of $3.2 million is about 5.9% of its $55 million market cap. Since this is a fairly small percentage, it would probably be very easy for the company to finance another year’s growth by issuing new shares to investors, or even taking out a loan.
It may already be clear to you that we’re relatively comfortable with the way Intellicheck is burning its money. In particular, we think the cash burn relative to market cap is evidence that the company is more than aware of its expenses. While the incremental cash burn wasn’t large, the other factors mentioned in this article more than offset the weakness of this metric. There’s no doubt that shareholders can take great heart from the fact that analysts predict it will reach breakeven in the foreseeable future. After considering a range of factors in this article, we’re quite relaxed about its cash burn, as the company appears to be well-placed to continue funding its growth. After a deeper dive we saw it 4 warning signs for Intellicheck things you need to be aware of, and 1 of them is potentially serious.
Naturally, You may find a fantastic investment by looking elsewhere. So take a look at this free list of companies with significant shareholdings, and this list of growth stocks (according to analyst forecasts)
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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.
