Just because a business does not make any money, does not mean that the stock will go down. For example, Kopin (NASDAQ:KOPN) shareholders have done very well over the last year, with the share price soaring by 697%. 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 notwithstanding the buoyant share price, we think it's well worth asking whether Kopin's 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.
Does Kopin Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Kopin last reported its balance sheet in March 2021, it had zero debt and cash worth US$36m. Importantly, its cash burn was US$5.0m over the trailing twelve months. Therefore, from March 2021 it had 7.2 years of cash runway. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Kopin Growing?
Happily, Kopin is travelling in the right direction when it comes to its cash burn, which is down 71% over the last year. Pleasingly, this was achieved with the help of a 36% boost to revenue. It seems to be growing nicely. 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.
Can Kopin Raise More Cash Easily?
There's no doubt Kopin seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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.
Kopin's cash burn of US$5.0m is about 0.9% of its US$560m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.
Is Kopin's Cash Burn A Worry?
It may already be apparent to you that we're relatively comfortable with the way Kopin is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. But it's fair to say that its revenue growth was also very reassuring. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. An in-depth examination of risks revealed 4 warning signs for Kopin that readers should think about before committing capital to this stock.
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. 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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