Companies like NeuroOne Medical Technologies (NASDAQ: NMTC) could be quite risky
It is easy to understand why investors are attracted to unprofitable companies. For example, although the software as a service company Salesforce.com lost money for years as it increased its recurring revenue, if you had owned stocks since 2005, you would have done very well. But while the successes are well known, investors should not ignore the myriad of unprofitable companies that simply burn all their money and collapse.
So the natural question for NeuroOne Medical Technologies (NASDAQ: NMTC) is whether they should be concerned about its rate of cash consumption. In this report, we will consider the company’s annual negative free cash flow, which we now call “cash burn”. Let’s start with a review of the company’s cash flow, relative to its cash consumption.
Check out our latest review for NeuroOne Medical Technologies
How long is NeuroOne Medical Technologies’ cash flow track?
A company’s cash flow trail is the time it would take to deplete its cash reserves at its current rate of cash consumption. When NeuroOne Medical Technologies last released its balance sheet in September 2021, it had no debt and $ 6.9 million in cash. Looking at last year, the company burned $ 8.7 million. This means that it had a cash flow trail of around 10 months as of September 2021. This is a fairly short cash flow trail, indicating that the company needs to either reduce its annual cash flow consumption or replenish its cash flow. You can see how his cash balance has changed over time in the image below.
How does NeuroOne Medical Technologies’ money consumption change over time?
In our opinion, NeuroOne Medical Technologies is not yet generating significant operating revenue, as it has only brought in US $ 243,000 in the past twelve months. Therefore, for the purposes of this analysis, we will focus on monitoring cash consumption. The surge in money spent 144% over one year is certainly testing our nerves. This kind of rate of spending growth cannot continue for very long before it results in weak balance sheets in general. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.
How difficult would it be for NeuroOne Medical Technologies to raise more cash for growth?
Given its cash-consuming trajectory, NeuroOne Medical Technologies shareholders should already be thinking about how easy it might be for it to raise additional cash in the future. The issuance of new shares or debt are the most common ways for a listed company to raise more money for its activity. Many companies end up issuing new shares to finance their future growth. We can compare a company’s cash consumption to its market capitalization to get an idea of how many new shares a company would need to issue to fund its one-year operations.
NeuroOne Medical Technologies’ cash consumption of US $ 8.7 million represents approximately 26% of its market capitalization of US $ 33 million. That’s a pretty noticeable cash expense, so if the company were to sell shares to cover the cost of operations for another year, shareholders would suffer costly dilution.
Is NeuroOne Medical Technologies’ money consumption a problem?
NeuroOne Medical Technologies is not in a Great position when it comes to his burnout situation. While we can understand if some shareholders find its consumption of cash relative to its market capitalization acceptable, we cannot ignore the fact that we consider its growing consumption of cash to be downright inconvenient. Considering all the metrics mentioned in this report, we believe its consumption of cash is quite risky, and if we were to hold stocks, we would watch like a hawk for any deterioration. On another note, we conducted a thorough investigation of the company and identified 7 warning signs for NeuroOne Medical Technologies (4 don’t sit too well with us!) Which you should be aware of before investing here.
If you’d rather discover another business with better fundamentals, don’t miss this free list of interesting companies that have HIGH ROE and low debt or this list of stocks that are all expected to grow.
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