Yahoo Finance We Think SOPHiA GENETICS (NASDAQ:SOPH) Can Afford To Drive Business Growth
We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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.
So should SOPHiA GENETICS (NASDAQ:SOPH) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
View our latest analysis for SOPHiA GENETICS
When Might SOPHiA GENETICS Run Out Of Money?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at December 2023, SOPHiA GENETICS had cash of US$123m and no debt. Importantly, its cash burn was US$58m over the trailing twelve months. That means it had a cash runway of about 2.1 years as of December 2023. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.
How Well Is SOPHiA GENETICS Growing?
We reckon the fact that SOPHiA GENETICS managed to shrink its cash burn by 28% over the last year is rather encouraging. On top of that, operating revenue was up 31%, making for a heartening combination It seems to be growing nicely. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can SOPHiA GENETICS Raise More Cash Easily?
There's no doubt SOPHiA GENETICS seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.
SOPHiA GENETICS has a market capitalisation of US$324m and burnt through US$58m last year, which is 18% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.
How Risky Is SOPHiA GENETICS' Cash Burn Situation?
SOPHiA GENETICS appears to be in pretty good health when it comes to its cash burn situation. Not only was its cash runway quite good, but its revenue growth was a real positive. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about SOPHiA GENETICS' situation. Taking an in-depth view of risks, we've identified 2 warning signs for SOPHiA GENETICS that you should be aware of before investing.
Of course SOPHiA GENETICS 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 that insiders are buying.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
