Just because a business isn’t making money doesn’t mean the stock will go down. For example, biotech and mineral exploration companies often lose money for years before they are successful with a new treatment or mineral discovery. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.
So should Customize (NASDAQ: PSNL) Are shareholders worried about its consumption of cash? In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. Let’s start with a review of the company’s cash flow, relative to its cash consumption.
Discover our latest analysis for Personalis
Does Personalis have a long cash flow trail?
You can calculate a company’s cash flow trail by dividing the amount of cash it has by the rate at which it spends that cash. When Personalis last published its balance sheet in March 2021, it had no debt and cash worth $ 353 million. In the past year, its cash consumption amounted to US $ 49 million. Therefore, as of March 2021, he had 7.2 years of cash flow. While this is only a measure of its cash consumption situation, it certainly gives us the impression that holders have nothing to fear. Pictured below, you can see how his cash holdings have changed over time.
How is Personalis developing?
At first glance, it’s a bit worrying to see that Personalis has actually increased its cash usage by 44%, year over year. At the very least, the 14% growth in turnover gives a glimmer of hope. In light of the above data, we are quite optimistic about the growth trajectory of companies. If the past is always worth studying, it is the future that matters most. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.
Can Personalis easily raise more money?
While Personalis seems to be in a decent position, we think it’s still worth considering how easily it could raise more money, should it prove desirable. Businesses can raise capital through debt or equity. One of the main advantages of publicly traded companies is that they can sell stocks to investors to raise funds and finance their 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.
Since it has a market cap of $ 1.1 billion, Personalis’s $ 49 million in cash consumption is equivalent to approximately 4.5% of its market value. Given that this is a rather small percentage, it would probably be very easy for the company to finance the growth of another year by issuing new shares to investors, or even taking out a loan.
Is Personalis’ money consumption a problem?
It may already be obvious to you that we are relatively comfortable with the way Personalis burns its money. For example, we think his cash flow trail suggests the business is on the right track. While its growing consumption of cash gives us a reason to pause, the other metrics we’ve discussed in this article form an overall positive picture. Looking at all of the metrics in this article, together, we’re not worried about its rate of cash consumption; the business appears to be well above its medium-term spending needs. It is important for readers to be aware of the risks that can affect business operations, and we have selected 4 warning signs for Personalis that investors need to know when investing in stocks.
Of course Personalis may not be the best stock to buy. So you might want to see this free a set of companies offering a high return on equity, or that list of stocks that insiders buy.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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