We're Hopeful That SaverOne 2014 (TLV:SAVR) Will Use Its Cash Wisely

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for SaverOne 2014 (TLV:SAVR) shareholders is whether they should be concerned by its rate of 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for SaverOne 2014

When Might SaverOne 2014 Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When SaverOne 2014 last reported its balance sheet in December 2020, it had zero debt and cash worth ₪38m. Importantly, its cash burn was ₪12m over the trailing twelve months. So it had a cash runway of about 3.0 years from December 2020. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.

How Is SaverOne 2014's Cash Burn Changing Over Time?

Whilst it's great to see that SaverOne 2014 has already begun generating revenue from operations, last year it only produced ₪316k, so we don't think it is generating significant revenue, at this point. 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. Over the last year its cash burn actually increased by 48%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. Admittedly, we're a bit cautious of SaverOne 2014 due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

How Hard Would It Be For SaverOne 2014 To Raise More Cash For Growth?

Given its cash burn trajectory, SaverOne 2014 shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Since it has a market capitalisation of ₪197m, SaverOne 2014's ₪12m in cash burn equates to about 6.3% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is SaverOne 2014's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way SaverOne 2014 is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, SaverOne 2014 has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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)

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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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