Companies Like 01 Communique Laboratory (CVE:ONE) Are In A Position To Invest In Growth

Just because a business does not make any money, does not mean that the stock will go down. Indeed, 01 Communique Laboratory (CVE:ONE) stock is up 218% in the last year, providing strong gains for shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given its strong share price performance, we think it's worthwhile for 01 Communique Laboratory shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for 01 Communique Laboratory

Does 01 Communique Laboratory Have A Long 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. 01 Communique Laboratory has such a small amount of debt that we'll set it aside, and focus on the CA$1.0m in cash it held at October 2020. In the last year, its cash burn was CA$581k. So it had a cash runway of approximately 21 months from October 2020. 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. Depicted below, you can see how its cash holdings have changed over time.

How Is 01 Communique Laboratory's Cash Burn Changing Over Time?

In our view, 01 Communique Laboratory doesn't yet produce significant amounts of operating revenue, since it reported just CA$522k in the last twelve months. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. With cash burn dropping by 8.8% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. 01 Communique Laboratory makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can 01 Communique Laboratory Raise More Cash Easily?

While 01 Communique Laboratory is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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).

Since it has a market capitalisation of CA$33m, 01 Communique Laboratory's CA$581k in cash burn equates to about 1.8% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is 01 Communique Laboratory's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about 01 Communique Laboratory's cash burn. In particular, we think its cash burn relative to its market cap stands out as evidence that the company is well on top of its spending. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Separately, we looked at different risks affecting the company and spotted 5 warning signs for 01 Communique Laboratory (of which 1 is potentially serious!) you should know about.

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

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This article by Simply Wall St is general in nature. 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.
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