As the US$12.08M market cap ENDRA Life Sciences Inc (NASDAQ:NDRA) released another year of negative earnings, investors may be on edge waiting for breakeven. 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? This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that ENDRA Life Sciences is spending more money than it earns, it will need to fund its expenses via external sources of capital. Today I’ve examined ENDRA Life Sciences’s financial data from its most recent earnings update, to roughly assess when the company may need to raise new capital. See our latest analysis for ENDRA Life Sciences
What is cash burn?
Cash burn is when a loss-making company spends its equity to fund its expenses before making money from its day-to-day business. Currently, ENDRA Life Sciences has US$6.98M in cash holdings and producing negative cash flows from its day-to-day activities of -US$2.47M. 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. 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 ENDRA Life Sciences need to raise more cash?
Operational expenses, or opex for short, are the bare minimum expenses for ENDRA Life Sciences to continue its operations. In this case I’ve only accounted for sales, general and admin (SG&A) expenses, and basic R&D expenses incurred within this year. In the past year, opex (excluding one-offs) rose by 13.63%, which is relatively reasonable for a small-cap company. According to my analysis, if ENDRA Life Sciences continues to grow at this rate, it will burn through its cash reserves by the next 2.1 years, and may be coming to market again. Not the best news for shareholders. Furthermore, even if ENDRA Life Sciences kept its opex level at the current US$3.10M, it will still be coming to market in about 2.2 years. Even though this is analysis is fairly basic, and ENDRA Life Sciences 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:This analysis isn’t meant to deter you from ENDRA Life Sciences, but rather, to help you better understand the risks involved investing in loss-making companies. The cash burn analysis result indicates a cash constraint for the company, due to its high opex growth and its level of cash reserves. This suggests an opportunity to enter into the stock, potentially at an attractive price, should ENDRA Life Sciences come to market to fund its growth. Keep in mind I haven’t considered other factors such as how NDRA is expected to perform in the future. I recommend you continue to research ENDRA Life Sciences to get a better picture of the company by looking at:
- Valuation: What is NDRA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether NDRA is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on ENDRA Life Sciences’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.