HTG Molecular Diagnostics Inc (NASDAQ:HTGM) continues its loss-making streak, announcing negative earnings for its latest financial year ending. The single most important question to ask when you’re investing in a loss-making company is – will they need to raise cash again, and if so, when? Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to come back to market for additional capital raising. This may not always be on their own terms, which could hurt current shareholders if the new deal lowers the value of their shares. Looking at HTG Molecular Diagnostics’s latest financial data, I will gauge when the company may run out of cash and need to raise more money. Check out our latest analysis for HTG Molecular Diagnostics
What is cash burn?
HTG Molecular Diagnostics currently has US$9.05M in the bank, with negative cash flows from operations of -US$18.67M. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. The cash burn rate refers to the rate at which the company uses up its supply of cash over time. The riskiest factor facing investors of the company is the potential for the company to run out of cash without the ability to raise more money, i.e. the company goes out of business. Furthermore, it is not uncommon to find loss-makers in an industry such as healthcare. The industry is highly competitive, with companies racing to invest in innovation at the risk of burning through its cash too fast.
When will HTG Molecular Diagnostics need to raise more cash?
Opex, or operational expenses, are the necessary costs HTG Molecular Diagnostics must pay to keep the business running every day. For the purpose of this calculation I’ve only accounted for sales, general and admin (SG&A) expenses, and R&D expenses incurred within this year. Opex (excluding one-offs) grew by 22.06% over the past year, which is considerably high. This means that, if HTG Molecular Diagnostics continues to grow its opex at this rate, given how much money it currently has in the bank, it will actually need to raise capital again in within the next 5 months! Furthermore, even if HTG Molecular Diagnostics kept its opex level at the current US$24.74M, it will still be coming to market in the next couple of months. Even though this is analysis is fairly basic, and HTG Molecular Diagnostics still can cut its overhead in the near future, or raise debt capital instead of coming to equity markets, the analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
Next Steps:
Loss-making companies are a risky play, especially those that are still growing its opex at a high rate. Though, this shouldn’t discourage you from considering entering the stock in the future. The outcome of my analysis suggests that if the company maintains the rate of opex growth, it will run out of cash within the year. This suggests an opportunity to enter into the stock, potentially at an attractive price, should HTG Molecular Diagnostics come to market to fund its growth. Keep in mind I haven’t considered other factors such as how HTGM is expected to perform in the future. You should continue to research HTG Molecular Diagnostics to get a more holistic view of the company by looking at:- 1. Future Outlook: What are well-informed industry analysts predicting for HTGM’s future growth? Take a look at our free research report of analyst consensus for HTGM’s outlook.
- 2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on HTG Molecular Diagnostics’s board and the CEO’s back ground.
- 3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.