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. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that NanoVibronix is spending more money than it earns, it will need to fund its expenses via external sources of capital. Looking at NanoVibronix’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 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 -US$2.18M, NanoVibronix is chipping away at its US$4.36M cash reserves in order to run its business. The cash burn rate refers to the rate at which the company uses up its supply of cash over time. 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 companies face the trade-off between running the risk of depleting its cash reserves too fast, or the risk of falling behind competition on innovation and gaining market share by investing too slowly.
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. Opex (excluding one-offs) grew by 25.00% over the past year, which is rather substantial. My cash burn analysis suggests that NanoVibronix has a cash runway of 1.3 years, given its current level of cash holdings. This may mean it will be coming to market sooner than shareholders would like. Though, if NanoVibronix kept its opex level at US$3.24M, it will still come to market within the next couple of years, but slightly later. Although this is a relatively simplistic calculation, and NanoVibronix may reduce its costs or raise debt capital instead of coming to equity markets, the outcome of this 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: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. The cash burn analysis result indicates a cash constraint for the company, due to its high opex growth and its level of cash reserves. The potential equity raising resulting from this means you could potentially get a better deal on the share price when the company raises capital next. This is only a rough assessment of financial health, and I’m sure NAOV has company-specific issues impacting its cash management decisions. You should continue to research NanoVibronix to get a better picture of the company by looking at:
- 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.
- 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.
- 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.