Companies Like Oramed Pharmaceuticals (NASDAQ:ORMP) Are In A Position To Invest In Growth

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Oramed Pharmaceuticals (NASDAQ:ORMP) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Oramed Pharmaceuticals

When Might Oramed Pharmaceuticals Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Oramed Pharmaceuticals last reported its balance sheet in September 2022, it had zero debt and cash worth US$160m. In the last year, its cash burn was US$39m. So it had a cash runway of about 4.0 years from September 2022. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.

How Well Is Oramed Pharmaceuticals Growing?

Oramed Pharmaceuticals boosted investment sharply in the last year, with cash burn ramping by 82%. On top of that, the fact that operating revenue was basically flat over the same period compounds the concern. Considering both these metrics, we're a little concerned about how the company is developing. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Oramed Pharmaceuticals Raise Cash?

Oramed Pharmaceuticals 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. Many companies end up issuing new shares to fund future 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.

Oramed Pharmaceuticals' cash burn of US$39m is about 11% of its US$370m market capitalisation. 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.

So, Should We Worry About Oramed Pharmaceuticals' Cash Burn?

On this analysis of Oramed Pharmaceuticals' cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking an in-depth view of risks, we've identified 3 warning signs for Oramed Pharmaceuticals that you should be aware of before investing.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.