Companies Like Brainstorm Cell Therapeutics (NASDAQ:BCLI) Can Be Considered Quite Risky

Just because a business does not make any money, does not mean that the stock will go down. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Brainstorm Cell Therapeutics (NASDAQ:BCLI) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We’ll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Brainstorm Cell Therapeutics

How Long Is Brainstorm Cell Therapeutics’s Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Brainstorm Cell Therapeutics last reported its balance sheet in September 2019, it had zero debt and cash worth US$2.1m. Importantly, its cash burn was US$12m over the trailing twelve months. That means it had a cash runway of around 2 months as of September 2019. It’s extremely surprising to us that the company has allowed its cash runway to get that short! Depicted below, you can see how its cash holdings have changed over time.

NasdaqCM:BCLI Historical Debt, January 14th 2020
NasdaqCM:BCLI Historical Debt, January 14th 2020

How Is Brainstorm Cell Therapeutics’s Cash Burn Changing Over Time?

Brainstorm Cell Therapeutics didn’t record any revenue over the last year, indicating that it’s an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. It seems likely that the business is content with its current spending, as the cash burn rate stayed steady over the last twelve months. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Brainstorm Cell Therapeutics Raise Cash?

Since its cash burn is increasing (albeit only slightly), Brainstorm Cell Therapeutics shareholders should still be mindful of the possibility it will require more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. We can compare a company’s cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year’s operations.

Brainstorm Cell Therapeutics’s cash burn of US$12m is about 12% of its US$99m market capitalisation. As a result, we’d venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is Brainstorm Cell Therapeutics’s Cash Burn Situation?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Brainstorm Cell Therapeutics’s cash burn relative to its market cap was relatively promising. After looking at that range of measures, we think shareholders should be extremely attentive to how the company is using its cash, as the cash burn makes us uncomfortable. Notably, our data indicates that Brainstorm Cell Therapeutics insiders have been trading the shares. You can discover if they are buyers or sellers by clicking on this link.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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