NASDAQ:BCLI) stock is up 261% in the last year, providing strong gains for shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.” data-reactid=”28″>Even when a business is losing money, it’s possible for shareholders to make money if they buy a good business at the right price. Indeed, Brainstorm Cell Therapeutics (NASDAQ:BCLI) stock is up 261% in the last year, providing strong gains for shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given its strong share price performance, we think it’s worthwhile for Brainstorm Cell Therapeutics shareholders to consider whether its cash burn is concerning. 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 Brainstorm Cell Therapeutics ” data-reactid=”30″>See our latest analysis for Brainstorm Cell Therapeutics
When Might Brainstorm Cell Therapeutics 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 Brainstorm Cell Therapeutics last reported its balance sheet in June 2020, it had zero debt and cash worth US$16m. Importantly, its cash burn was US$28m over the trailing twelve months. That means it had a cash runway of around 7 months as of June 2020. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. Depicted below, you can see how its cash holdings have changed over time.
How Is Brainstorm Cell Therapeutics’ Cash Burn Changing Over Time?
how much the company is expected to grow in the next few years.” data-reactid=”50″>Because Brainstorm Cell Therapeutics isn’t currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. During the last twelve months, its cash burn actually ramped up 90%. While this spending increase is no doubt intended to drive growth, if the trend continues the company’s cash runway will shrink very quickly. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can Brainstorm Cell Therapeutics Raise Cash?
Since its cash burn is moving in the wrong direction, Brainstorm Cell Therapeutics shareholders may wish to think ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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).
Brainstorm Cell Therapeutics’ cash burn of US$28m is about 7.0% of its US$403m 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.
So, Should We Worry About Brainstorm Cell Therapeutics’ Cash Burn?
3 warning signs for Brainstorm Cell Therapeutics (of which 1 can’t be ignored!) you should know about.” data-reactid=”55″>On this analysis of Brainstorm Cell Therapeutics’ cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Brainstorm Cell Therapeutics (of which 1 can’t be ignored!) you should know about.
collection of companies boasting high return on equity, or this list of stocks that insiders are buying.” data-reactid=”60″>Of course Brainstorm Cell Therapeutics 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.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”61″>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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