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Just because a business does not make any money, does not mean that the stock will go down. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
Given this risk, we thought we'd take a look at whether ChromaDex (NASDAQ:CDXC) 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'. Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for ChromaDex
Does ChromaDex Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When ChromaDex last reported its balance sheet in March 2022, it had zero debt and cash worth US$21m. Looking at the last year, the company burnt through US$26m. Therefore, from March 2022 it had roughly 9 months of cash runway. Notably, analysts forecast that ChromaDex will break even (at a free cash flow level) in about 2 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. The image below shows how its cash balance has been changing over the last few years.
How Well Is ChromaDex Growing?
Notably, ChromaDex actually ramped up its cash burn very hard and fast in the last year, by 140%, signifying heavy investment in the business. While operating revenue was up over the same period, the 18% gain gives us scant comfort. Considering both these metrics, we're a little concerned about how the company is developing. 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.
Can ChromaDex Raise More Cash Easily?
Given the trajectory of ChromaDex's cash burn, many investors will already be thinking about how it might raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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).