Pulse Biosciences Inc (NASDAQ:PLSE) continues its loss-making streak, announcing negative earnings for its latest financial year ending. 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? Additional cash raising may dilute the value of your shares, and since Pulse Biosciences is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Pulse Biosciences may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question. View out our latest analysis for Pulse Biosciences
What is cash burn?
Pulse Biosciences currently has US$33.38m in the bank, with negative cash flows from operations of -US$13.61m.
The biggest threat facing Pulse Biosciences’s investor is the company going out of business when it runs out of money and cannot raise any more capital.
Pulse Biosciences operates in the healthcare equipment industry, which
delivered positive earnings in the past year. This means, on average, its industry peers are profitable. Pulse Biosciences runs the risk of running down its cash supply too fast, or falling behind its profitable peers by investing too little.
When will Pulse Biosciences need to raise more cash?
Operational expenses, or opex for short, are the bare minimum expenses for Pulse Biosciences 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. Opex (excluding one-offs) grew by 25.00% over the past year, which is considerably high. According to my analysis, if Pulse Biosciences continues to grow at this rate, it will burn through its cash reserves by the next 1.1 years and may be coming to market again. Not the best news for shareholders. Though, if Pulse Biosciences kept its opex level at US$30.64m, it will still come to market within the next couple of years, but slightly later. Even though this is analysis is fairly basic, and Pulse Biosciences still can cut its overhead in the near future, 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:
Loss-making companies are a risky play, especially those that are still growing its opex at a high rate. Though, this shouldn’t discourage you from considering entering the stock in the future. The outcome of my analysis suggests that if the company maintains the rate of opex growth, it will run out of cash in the upcoming years. This suggests an opportunity to enter into the stock, potentially at an attractive price, should Pulse Biosciences come to market to fund its growth. I admit this is a fairly basic analysis for PLSE’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Pulse Biosciences to get a more holistic view of the company by looking at:- Historical Performance: What has PLSE’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 Pulse Biosciences’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.