Yahoo Finance Is OraSure Technologies (NASDAQ:OSUR) In A Good Position To Deliver On Growth Plans?
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should OraSure Technologies (NASDAQ:OSUR) shareholders be worried about its cash burn? 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. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for OraSure Technologies
When Might OraSure Technologies Run Out Of Money?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When OraSure Technologies last reported its balance sheet in June 2022, it had zero debt and cash worth US$96m. Importantly, its cash burn was US$162m over the trailing twelve months. So it had a cash runway of approximately 7 months from June 2022. Importantly, analysts think that OraSure Technologies will reach cashflow breakeven in around 15 months. 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 OraSure Technologies Growing?
It was quite stunning to see that OraSure Technologies increased its cash burn by 314% over the last year. That does give us pause, and we can't take much solace in the operating revenue growth of 18% in the same time frame. Taken together, we think these growth metrics are a little worrying. 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 OraSure Technologies Raise More Cash Easily?
Since OraSure Technologies has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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).
Since it has a market capitalisation of US$275m, OraSure Technologies' US$162m in cash burn equates to about 59% of its market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).
Is OraSure Technologies' Cash Burn A Worry?
On this analysis of OraSure Technologies' cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. Summing up, we think the OraSure Technologies' cash burn is a risk, based on the factors we mentioned in this article. An in-depth examination of risks revealed 1 warning sign for OraSure Technologies that readers should think about before committing capital to this stock.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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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.
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