There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should BrainsWay (TLV:BWAY) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for BrainsWay
SWOT Analysis for BrainsWay
- Currently debt free.
- No major weaknesses identified for BWAY.
- Forecast to reduce losses next year.
- Has sufficient cash runway for more than 3 years based on current free cash flows.
- Good value based on P/S ratio compared to estimated Fair P/S ratio.
- Not expected to become profitable over the next 3 years.
When Might BrainsWay Run Out Of Money?
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. As at December 2022, BrainsWay had cash of US$48m and no debt. Looking at the last year, the company burnt through US$9.8m. So it had a cash runway of about 4.9 years from December 2022. There's no doubt that this is a reassuringly long runway. Importantly, if we extrapolate recent cash burn trends, the cash runway would be noticeably longer. The image below shows how its cash balance has been changing over the last few years.
How Well Is BrainsWay Growing?
It was quite stunning to see that BrainsWay increased its cash burn by 621% over the last year. While that's concerning on it's own, the fact that operating revenue was actually down 8.4% over the same period makes us positively tremulous. 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 BrainsWay Raise Cash?
BrainsWay seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Companies can raise capital through either debt or equity. 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).
BrainsWay has a market capitalisation of US$30m and burnt through US$9.8m last year, which is 33% of the company's market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.
Is BrainsWay's Cash Burn A Worry?
On this analysis of BrainsWay's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Taking an in-depth view of risks, we've identified 2 warning signs for BrainsWay that you should be aware of before investing.
Of course BrainsWay 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.
About TASE:BWAY
BrainsWay
Develops and sells noninvasive neurostimulation treatments for mental health disorders in the United States, East Asia, and internationally.
Flawless balance sheet with reasonable growth potential.
