We're Hopeful That CorMedix (NASDAQ:CRMD) Will Use Its Cash Wisely

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editorial-team@simplywallst.com (Simply Wall St)

Wed, Jan 22, 2025, 5:32 AM 4 min read

We can readily understand why investors are attracted to unprofitable companies. Indeed, CorMedix (NASDAQ:CRMD) stock is up 281% 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.

In light of its strong share price run, we think now is a good time to investigate how risky CorMedix's cash burn is. 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.

View our latest analysis for CorMedix

When Might CorMedix Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2024, CorMedix had US$46m in cash, and was debt-free. In the last year, its cash burn was US$56m. That means it had a cash runway of around 10 months as of September 2024. Notably, however, analysts think that CorMedix will break even (at a free cash flow level) 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.

debt-equity-history-analysis — NasdaqGM:CRMD Debt to Equity History January 22nd 2025

How Is CorMedix's Cash Burn Changing Over Time?

Whilst it's great to see that CorMedix has already begun generating revenue from operations, last year it only produced US$12m, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. During the last twelve months, its cash burn actually ramped up 65%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can CorMedix Raise More Cash Easily?

Given its cash burn trajectory, CorMedix shareholders should already be thinking about how easy it might be for it to raise further 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. 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.

CorMedix's cash burn of US$56m is about 7.6% of its US$738m market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is CorMedix's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way CorMedix is burning through its cash. In particular, we think its cash burn relative to its market cap stands out as evidence that the company is well on top of its spending. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for CorMedix that investors should know when investing in the stock.

Of course CorMedix 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 with high insider ownership.

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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.