Is Longeveron (NASDAQ:LGVN) 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, 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. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should Longeveron (NASDAQ:LGVN) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Longeveron

How Long Is Longeveron's 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 September 2021, Longeveron had cash of US$19m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was US$9.1m. That means it had a cash runway of about 2.1 years as of September 2021. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Longeveron Growing?

One thing for shareholders to keep front in mind is that Longeveron increased its cash burn by 376% in the last twelve months. That's pretty alarming given that operating revenue dropped 64% over the last year, though the business is likely attempting a strategic pivot. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Longeveron is building its business over time.

How Easily Can Longeveron Raise Cash?

Longeveron revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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).

Longeveron's cash burn of US$9.1m is about 4.7% of its US$192m 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 Longeveron's Cash Burn A Worry?

On this analysis of Longeveron'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. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Longeveron (1 is a bit concerning!) that you should be aware of before investing here.

Of course Longeveron 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.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.