We're Interested To See How Olink Holding (NASDAQ:OLK) Uses Its Cash Hoard To Grow

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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

Given this risk, we thought we'd take a look at whether Olink Holding (NASDAQ:OLK) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Olink Holding

Does Olink Holding Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Olink Holding last reported its balance sheet in March 2023, it had zero debt and cash worth US$173m. Importantly, its cash burn was US$40m over the trailing twelve months. Therefore, from March 2023 it had 4.3 years of cash runway. Importantly, though, analysts think that Olink Holding will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Olink Holding Growing?

We reckon the fact that Olink Holding managed to shrink its cash burn by 38% over the last year is rather encouraging. On top of that, operating revenue was up 39%, making for a heartening combination We think it is growing rather well, upon reflection. 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 Olink Holding Raise Cash?

We are certainly impressed with the progress Olink Holding has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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.

Olink Holding has a market capitalisation of US$2.4b and burnt through US$40m last year, which is 1.7% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

How Risky Is Olink Holding's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Olink Holding is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its cash burn reduction wasn't quite as good, but was still rather encouraging! It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Olink Holding that potential shareholders should take into account before putting money into a stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.