We Think PetVivo Holdings (NASDAQ:PETV) Can Afford To Drive Business Growth

By
Simply Wall St
Published
March 23, 2022
NasdaqCM:PETV
Source: Shutterstock

Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should PetVivo Holdings (NASDAQ:PETV) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for PetVivo Holdings

Does PetVivo Holdings Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at December 2021, PetVivo Holdings had cash of US$7.6m 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$3.2m. So it had a cash runway of about 2.4 years from December 2021. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
NasdaqCM:PETV Debt to Equity History March 23rd 2022

How Is PetVivo Holdings' Cash Burn Changing Over Time?

Whilst it's great to see that PetVivo Holdings has already begun generating revenue from operations, last year it only produced US$65k, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Remarkably, it actually increased its cash burn by 204% in the last year. Given that sharp increase in spending, the company's cash runway will shrink rapidly as it depletes its cash reserves. 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.

Can PetVivo Holdings Raise More Cash Easily?

While PetVivo Holdings 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. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Since it has a market capitalisation of US$27m, PetVivo Holdings' US$3.2m in cash burn equates to about 12% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is PetVivo Holdings' Cash Burn Situation?

On this analysis of PetVivo Holdings' cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, PetVivo Holdings has 6 warning signs (and 2 which are a bit unpleasant) we think you should know about.

Of course PetVivo Holdings may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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