PAVmed (NASDAQ:PAVM) Is In A Good Position To Deliver On Growth Plans

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should PAVmed (NASDAQ:PAVM) shareholders 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for PAVmed

When Might PAVmed Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at March 2021, PAVmed had cash of US$49m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through US$27m. So it had a cash runway of approximately 21 months from March 2021. Importantly, analysts think that PAVmed will reach cashflow breakeven in 5 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.

How Is PAVmed's Cash Burn Changing Over Time?

Because PAVmed isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. In fact, it ramped its spending strongly over the last year, increasing cash burn by 106%. That sort of spending growth rate can't continue for very long before it causes balance sheet weakness, generally speaking. 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.

How Easily Can PAVmed Raise Cash?

While PAVmed does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

PAVmed's cash burn of US$27m is about 7.7% of its US$354m market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

Is PAVmed's Cash Burn A Worry?

On this analysis of PAVmed's cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. One real positive is that analysts are forecasting that the company will reach breakeven. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about PAVmed's situation. Separately, we looked at different risks affecting the company and spotted 3 warning signs for PAVmed (of which 1 is significant!) you should know about.

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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