NanoVibronix Inc (NASDAQ:NAOV) continues its loss-making streak, announcing negative earnings for its latest financial year ending. Savvy investors should always reassess the situation of loss-making companies frequently, and keep informed about whether or not these businesses are in a strong cash position. Additional cash raising may dilute the value of your shares, and since NanoVibronix is currently burning more cash than it is making, it’s likely the business will need funding for future growth. NanoVibronix may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question. Check out our latest analysis for NanoVibronix
What is cash burn?
NanoVibronix’s expenses are currently higher than the money it makes from its day-to-day operations, which means it is funding its overhead with equity capital a.k.a. its cash. With a negative operating cash flow of -$1.83M, NanoVibronix is chipping away at its $0.08M cash reserves in order to run its business. The measure of how fast NanoVibronix goes through its cash reserves over time is called the cash burn rate. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Unprofitable companies operating in the high-growth healthcare industry often face this problem, and NanoVibronix is no exception. These businesses operate in a highly competitive environment and face running down its cash holdings too fast in order to keep up with innovation.
When will NanoVibronix need to raise more cash?
NanoVibronix has to pay its employees and other necessities such as rent and admin costs in order to keep its business running. These costs are called operational expenses, which is sometimes shortened to opex. In this calculation I’ve only included recurring sales, general and admin (SG&A) expenses, and R&D expenses occured within they year. In the past year, opex (excluding one-offs) rose by 24.83%, which is considerably high. My cash burn analysis suggests that, if NanoVibronix continues to spend its cash reserves at this current high rate, it’ll have to raise capital within the upcoming months, which may be a surprise to some shareholders. This is also the case if NanoVibronix maintains its opex level of $3.07M, without growth, going forward. Although this is a relatively simplistic calculation, and NanoVibronix may reduce its costs or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still helps us understand how sustainable the NanoVibronix’s operation is, and when things may have to change.
What this means for you:
The risks involved in investing in loss-making NanoVibronix means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. Now you know that if the company was to continue to grow its opex at a double-digit rate, it will not be able to sustain its operations given the current level of cash reserves. This suggests an opportunity to enter into the stock, potentially at an attractive price, should NanoVibronix come to market to fund its growth. Keep in mind I haven’t considered other factors such as how NAOV is expected to perform in the future. I recommend you continue to research NanoVibronix to get a better picture of the company by looking at:- 1. Historical Performance: What has NAOV’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on NanoVibronix’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.