Will DBV Technologies (EPA:DBV) Spend Its Cash Wisely?

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. By way of example, DBV Technologies (EPA:DBV) has seen its share price rise 248% over the last year, delighting many shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

In light of its strong share price run, we think now is a good time to investigate how risky DBV Technologies' cash burn is. 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for DBV Technologies

When Might DBV Technologies Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. DBV Technologies has such a small amount of debt that we'll set it aside, and focus on the US$125m in cash it held at June 2021. Looking at the last year, the company burnt through US$144m. So it had a cash runway of approximately 10 months from June 2021. Notably, analysts forecast that DBV Technologies will break even (at a free cash flow level) in about 3 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. The image below shows how its cash balance has been changing over the last few years.

How Well Is DBV Technologies Growing?

On balance, we think it's mildly positive that DBV Technologies trimmed its cash burn by 8.0% over the last twelve months. On the other hand, operating revenue was down 81% during the period, which is seriously uninspiring. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. While the past is always worth studying, it is the future that matters most of all. 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 DBV Technologies Raise Cash?

Given DBV Technologies' revenue is receding, there's a considerable chance it will eventually need to raise more money to spend on driving 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. 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.

DBV Technologies' cash burn of US$144m is about 24% of its US$596m market capitalisation. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

How Risky Is DBV Technologies' Cash Burn Situation?

On this analysis of DBV Technologies' cash burn, we think its cash burn reduction was reassuring, while its falling revenue has us a bit worried. One real positive is that analysts are forecasting that the company will reach breakeven. 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. Taking a deeper dive, we've spotted 2 warning signs for DBV Technologies you should be aware of, and 1 of them doesn't sit too well with us.

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)

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.

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