We Think Precise Biometrics (STO:PREC) Can Easily Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. For example, Precise Biometrics (STO:PREC) shareholders have done very well over the last year, with the share price soaring by 441%. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So notwithstanding the buoyant share price, we think it's well worth asking whether Precise Biometrics' cash burn is too risky. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Precise Biometrics

Does Precise Biometrics Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2024, Precise Biometrics had kr41m in cash, and was debt-free. In the last year, its cash burn was kr21m. So it had a cash runway of about 2.0 years from March 2024. Importantly, though, the one analyst we see covering the stock thinks that Precise Biometrics will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.

How Well Is Precise Biometrics Growing?

It was fairly positive to see that Precise Biometrics reduced its cash burn by 32% during the last year. But the revenue dip of 5.2% in the same period was a bit concerning. On balance, we'd say the company is improving over time. 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 Precise Biometrics Raise Cash?

Precise Biometrics 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. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Precise Biometrics has a market capitalisation of kr532m and burnt through kr21m last year, which is 3.9% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Precise Biometrics' Cash Burn?

As you can probably tell by now, we're not too worried about Precise Biometrics' cash burn. For example, we think its cash burn relative to its market cap suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Shareholders can take heart from the fact that at least one analyst is forecasting it will reach breakeven. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, Precise Biometrics has 3 warning signs (and 1 which is concerning) we think you should know about.

Of course Precise Biometrics 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 with high insider ownership.

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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.

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