As the CA$22.37m market cap Kraken Robotics Inc (CVE:PNG) released another year of negative earnings, investors may be on edge waiting for breakeven. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that Kraken Robotics is spending more money than it earns, it will need to fund its expenses via external sources of capital. Looking at Kraken Robotics’s latest financial data, I will gauge when the company may run out of cash and need to raise more money. View out our latest analysis for Kraken Robotics
What is cash burn?
Kraken Robotics currently has CA$574.81k in the bank, with negative cash flows from operations of -CA$3.87m. The riskiest factor facing investors of Kraken Robotics is the potential for the company to run out of cash without the ability to raise more money. Kraken Robotics operates in the electronic equipment and instruments industry, which delivered positive earnings in the past year. This means, on average, its industry peers are profitable. Kraken Robotics runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Kraken Robotics need to raise more cash?
Operational expenses, or opex for short, are the bare minimum expenses for Kraken Robotics to continue its operations. In this case I’ve only accounted for sales, general and admin (SG&A) expenses, and basic R&D expenses incurred within this year. Over the last twelve months, opex (excluding one-offs) increased by 25.00%, which is rather substantial. My cash burn analysis suggests that, if Kraken Robotics continues to spend its cash reserves at this current high rate, it’ll have to raise capital within the upcoming months, which may be a surprise to some shareholders. Furthermore, even if Kraken Robotics kept its opex level at the current CA$4.42m, it will still be coming to market in the next couple of months. Although this is a relatively simplistic calculation, and Kraken Robotics may reduce its costs or raise debt capital instead of coming to equity markets, the analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
Next Steps:Loss-making companies are a risky play, especially those that are still growing its opex at a high rate. Though, this shouldn’t discourage you from considering entering the stock in the future. Now you know that if the company was to continue to grow its opex at a double-digit rate, it will not be able to sustain its operations given the current level of cash reserves. The potential equity raising resulting from this means you could potentially get a better deal on the share price when the company raises capital next. Keep in mind I haven’t considered other factors such as how PNG is expected to perform in the future. I suggest you continue to research Kraken Robotics to get a better picture of the company by looking at:
- Historical Performance: What has PNG’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Kraken Robotics’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.