We Think ReWalk Robotics (NASDAQ:RWLK) Can Afford To Drive Business Growth

There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, ReWalk Robotics (NASDAQ:RWLK) has seen its share price rise 311% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So notwithstanding the buoyant share price, we think it's well worth asking whether ReWalk Robotics' cash burn is too risky. 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for ReWalk Robotics

Does ReWalk Robotics Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2020, ReWalk Robotics had cash of US$20m and no debt. Importantly, its cash burn was US$13m over the trailing twelve months. That means it had a cash runway of around 19 months as of December 2020. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

How Well Is ReWalk Robotics Growing?

On balance, we think it's mildly positive that ReWalk Robotics trimmed its cash burn by 15% over the last twelve months. But the revenue dip of 9.9% in the same period was a bit concerning. Considering both these factors, we're not particularly excited by its growth profile. 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 Hard Would It Be For ReWalk Robotics To Raise More Cash For Growth?

ReWalk Robotics seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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 comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

ReWalk Robotics has a market capitalisation of US$120m and burnt through US$13m last year, which is 11% of the company's 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 ReWalk Robotics' Cash Burn Situation?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought ReWalk Robotics' cash burn relative to its market cap was relatively promising. 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. Separately, we looked at different risks affecting the company and spotted 4 warning signs for ReWalk Robotics (of which 1 makes us a bit uncomfortable!) you should know about.

Of course ReWalk Robotics 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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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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