Stock Analysis

Is Proteomics International Laboratories (ASX:PIQ) In A Good Position To Invest In Growth?

ASX:PIQ
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There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether Proteomics International Laboratories (ASX:PIQ) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Proteomics International Laboratories

How Long Is Proteomics International Laboratories' Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Proteomics International Laboratories last reported its balance sheet in December 2021, it had zero debt and cash worth AU$4.5m. Looking at the last year, the company burnt through AU$3.3m. That means it had a cash runway of around 17 months as of December 2021. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
ASX:PIQ Debt to Equity History August 9th 2022

How Is Proteomics International Laboratories' Cash Burn Changing Over Time?

In the last year, Proteomics International Laboratories did book revenue of AU$2.8m, but its revenue from operations was less, at just AU$1.4m. We don't think that's enough operating revenue for us to understand too much from revenue growth rates, since the company is growing off a low base. So we'll focus on the cash burn, today. Its cash burn positively exploded in the last year, up 643%. Given that sharp increase in spending, the company's cash runway will shrink rapidly as it depletes its cash reserves. Admittedly, we're a bit cautious of Proteomics International Laboratories due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

How Easily Can Proteomics International Laboratories Raise Cash?

Given its cash burn trajectory, Proteomics International Laboratories shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Proteomics International Laboratories' cash burn of AU$3.3m is about 3.1% of its AU$105m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Proteomics International Laboratories' Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Proteomics International Laboratories' cash burn relative to its market cap was relatively promising. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, Proteomics International Laboratories has 3 warning signs (and 1 which is significant) we think you should know about.

Of course Proteomics International Laboratories may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.