As the €5.67M market cap Doppler SA. (ATSE:DOPPLER) released another year of negative earnings, investors may be on edge waiting for breakeven. Savvy investors should always reassess the situation of loss-making companies frequently, and keep informed about whether or not these businesses are in a strong cash position. Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to come back to market for additional capital raising. This may not always be on their own terms, which could hurt current shareholders if the new deal lowers the value of their shares. Today I’ve examined Doppler’s financial data from its most recent earnings update, to roughly assess when the company may need to raise new capital. See our latest analysis for Doppler
What is cash burn?
Cash burn is when a loss-making company spends its equity to fund its expenses before making money from its day-to-day business. Currently, Doppler has €481.86K in cash holdings and producing negative cash flows from its day-to-day activities of -€299.11K. How fast Doppler runs down its cash supply over time is known as the cash burn rate. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Doppler operates in the industrial machinery industry, which delivered positive earnings in the past year. This means, on average, its industry peers operating are profitable. Doppler runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Doppler need to raise more cash?
Operational expenses, or opex for short, are the bare minimum expenses for Doppler 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. Opex declined by 3.10% over the past year, which could be an indication of Doppler putting the brakes on ramping up high growth. However, this cost-reduction initiative is still not enough. Given the level of cash left in the bank, if Doppler maintained its opex level of €2.84M, it will still run out of cash within the next couples of months. Although this is a relatively simplistic calculation, and Doppler may continue to reduce its costs further or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still helps us understand how sustainable the Doppler’s operation is, and when things may have to change.
Next Steps:The risks involved in investing in loss-making Doppler means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. The outcome of my analysis suggests that even if the company maintains this negative rate of opex growth, it will run out of cash within the year. This suggests an opportunity to enter into the stock, potentially at an attractive price, should Doppler come to market to fund its growth. I admit this is a fairly basic analysis for DOPPLER’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Doppler to get a better picture of the company by looking at:
- Valuation: What is DOPPLER worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether DOPPLER is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Doppler’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.