ClearPoint Neuro (NASDAQ:CLPT) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that ClearPoint Neuro, Inc. (NASDAQ:CLPT) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for ClearPoint Neuro

What Is ClearPoint Neuro's Debt?

The image below, which you can click on for greater detail, shows that ClearPoint Neuro had debt of US$9.87m at the end of June 2022, a reduction from US$17.5m over a year. But on the other hand it also has US$45.1m in cash, leading to a US$35.3m net cash position.

How Strong Is ClearPoint Neuro's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ClearPoint Neuro had liabilities of US$5.48m due within 12 months and liabilities of US$11.9m due beyond that. On the other hand, it had cash of US$45.1m and US$3.35m worth of receivables due within a year. So it can boast US$31.1m more liquid assets than total liabilities.

This short term liquidity is a sign that ClearPoint Neuro could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that ClearPoint Neuro has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if ClearPoint Neuro can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year ClearPoint Neuro wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$19m. With any luck the company will be able to grow its way to profitability.

So How Risky Is ClearPoint Neuro?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year ClearPoint Neuro had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$17m of cash and made a loss of US$16m. While this does make the company a bit risky, it's important to remember it has net cash of US$35.3m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, ClearPoint Neuro may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for ClearPoint Neuro you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.