Here's Why We're Not At All Concerned With OptimizeRx's (NASDAQ:OPRX) Cash Burn Situation

Just because a business does not make any money, does not mean that the stock will go down. Indeed, OptimizeRx (NASDAQ:OPRX) stock is up 342% in the last year, providing strong gains for shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So notwithstanding the buoyant share price, we think it's well worth asking whether OptimizeRx's cash burn is too risky. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for OptimizeRx

When Might OptimizeRx Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2021, OptimizeRx had US$82m in cash, and was debt-free. In the last year, its cash burn was US$1.1m. So it had a very long cash runway of many years from March 2021. Importantly, though, analysts think that OptimizeRx will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

How Well Is OptimizeRx Growing?

OptimizeRx managed to reduce its cash burn by 86% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. And there's no doubt that the inspiriting revenue growth of 74% assisted in that improvement. Considering these factors, we're fairly impressed by its growth trajectory. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For OptimizeRx To Raise More Cash For Growth?

We are certainly impressed with the progress OptimizeRx has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

OptimizeRx's cash burn of US$1.1m is about 0.1% of its US$992m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

So, Should We Worry About OptimizeRx's Cash Burn?

As you can probably tell by now, we're not too worried about OptimizeRx's cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. And even its cash burn relative to its market cap was very encouraging. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for OptimizeRx that potential shareholders should take into account before putting money into a stock.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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