Stock Analysis

Will LENSAR (NASDAQ:LNSR) Spend Its Cash Wisely?

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NasdaqCM:LNSR
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Just because a business does not make any money, does not mean that the stock will go down. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether LENSAR (NASDAQ:LNSR) shareholders should be worried about its cash burn. 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. Let's start with an examination of the business' cash, relative to its cash burn.

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How Long Is LENSAR's Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In December 2022, LENSAR had US$15m in cash, and was debt-free. Looking at the last year, the company burnt through US$11m. Therefore, from December 2022 it had roughly 16 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
NasdaqCM:LNSR Debt to Equity History March 18th 2023

How Well Is LENSAR Growing?

At first glance it's a bit worrying to see that LENSAR actually boosted its cash burn by 19%, year on year. At least the revenue was up 2.6% during the period, even if it wasn't up by much. Considering both these factors, we're not particularly excited by its growth profile. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can LENSAR Raise More Cash Easily?

LENSAR 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. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

LENSAR's cash burn of US$11m is about 38% of its US$29m market capitalisation. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

How Risky Is LENSAR's Cash Burn Situation?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought LENSAR's cash runway was relatively promising. Summing up, we think the LENSAR's cash burn is a risk, based on the factors we mentioned in this article. An in-depth examination of risks revealed 2 warning signs for LENSAR that readers should think about before committing capital to this stock.

Of course LENSAR 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 that insiders are buying.

What are the risks and opportunities for LENSAR?

LENSAR, Inc., a commercial-stage medical device company, focuses on designing, developing, and marketing a femtosecond laser system for the treatment of cataracts and the management of pre-existing or surgically induced corneal astigmatism.

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Rewards

  • Revenue is forecast to grow 25.18% per year

Risks

  • Has less than 1 year of cash runway

  • Does not have a meaningful market cap ($29M)

  • Currently unprofitable and not forecast to become profitable over the next 3 years

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