Stock Analysis

Companies Like Suven Life Sciences (NSE:SUVEN) Are In A Position To Invest In Growth

NSEI:SUVEN
Source: Shutterstock

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. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether Suven Life Sciences (NSE:SUVEN) shareholders should 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.

See our latest analysis for Suven Life Sciences

SWOT Analysis for Suven Life Sciences

Strength
  • Currently debt free.
Weakness
  • Dividend is low compared to the top 25% of dividend payers in the Life Sciences market.
  • Current share price is above our estimate of fair value.
  • Shareholders have been diluted in the past year.
Opportunity
  • Has sufficient cash runway for more than 3 years based on current free cash flows.
  • Lack of analyst coverage makes it difficult to determine SUVEN's earnings prospects.
Threat
  • No apparent threats visible for SUVEN.

When Might Suven Life Sciences Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Suven Life Sciences last reported its balance sheet in March 2023, it had zero debt and cash worth ₹2.4b. Importantly, its cash burn was ₹1.1b over the trailing twelve months. So it had a cash runway of about 2.2 years from March 2023. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
NSEI:SUVEN Debt to Equity History June 21st 2023

How Well Is Suven Life Sciences Growing?

It was fairly positive to see that Suven Life Sciences reduced its cash burn by 28% during the last year. And operating revenue was up by 14% too. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Suven Life Sciences is building its business over time.

Can Suven Life Sciences Raise More Cash Easily?

Suven Life Sciences 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. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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).

Since it has a market capitalisation of ₹15b, Suven Life Sciences' ₹1.1b in cash burn equates to about 7.3% 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 Suven Life Sciences' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Suven Life Sciences is burning through its cash. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. And even though its revenue growth wasn't quite as impressive, it was still a positive. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Suven Life Sciences (2 can't be ignored!) that you should be aware of before investing here.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

Valuation is complex, but we're helping make it simple.

Find out whether Suven Life Sciences is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.