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We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether ISR Immune System Regulation Holding (STO:ISR) shareholders should 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 ISR Immune System Regulation Holding

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 June 2020, ISR Immune System Regulation Holding had cash of kr49m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was kr28m. So it had a cash runway of approximately 21 months from June 2020. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

ISR Immune System Regulation Holding didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Over the last year its cash burn actually increased by 4.9%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. ISR Immune System Regulation Holding makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

While its cash burn is only increasing slightly, ISR Immune System Regulation Holding shareholders should still consider the potential need for further cash, down the track. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

ISR Immune System Regulation Holding's cash burn of kr28m is about 14% of its kr195m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought ISR Immune System Regulation Holding's cash runway was relatively promising. 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 ISR Immune System Regulation Holding's situation. On another note, ISR Immune System Regulation Holding has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

Of course ISR Immune System Regulation Holding 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.

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This article by Simply Wall St is general in nature. 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. *Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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We Think ISR Immune System Regulation Holding (STO:ISR) Can Afford To Drive Business Growth - Simply Wall St

This entry was posted on December 14, 2020 at 1:56 am and is filed under Immune System. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. |