We Think ReWalk Robotics (NASDAQ:RWLK) Needs To Drive Business Growth Carefully
There’s no doubt that money can be made by owning shares of unprofitable businesses. 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for ReWalk Robotics (NASDAQ:RWLK) shareholders is whether they should be concerned by its rate of 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. We’ll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for ReWalk Robotics
Does ReWalk Robotics Have A Long Cash Runway?
A company’s cash runway is calculated by dividing its cash hoard by its cash burn. When ReWalk Robotics last reported its balance sheet in September 2023, it had zero debt and cash worth US$33m. Importantly, its cash burn was US$20m over the trailing twelve months. So it had a cash runway of approximately 19 months from September 2023. 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. The image below shows how its cash balance has been changing over the last few years.
How Well Is ReWalk Robotics Growing?
Some investors might find it troubling that ReWalk Robotics is actually increasing its cash burn, which is up 21% in the last year. On a more positive note, the operating revenue improved by 100% over the period, offering an indication that the expenditure may well be worthwhile. If that revenue does keep flowing reliably, then the company could see a strong improvement in free cash flow simply by reducing growth expenditure. 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 ReWalk Robotics Raise More Cash Easily?
While ReWalk Robotics seems to be in a fairly good position, it’s still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By looking at a company’s cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year’s cash burn.
Since it has a market capitalisation of US$42m, ReWalk Robotics’ US$20m in cash burn equates to about 48% 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 ReWalk Robotics’ Cash Burn A Worry?
On this analysis of ReWalk Robotics’ cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. We don’t think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Readers need to have a sound understanding of business risks before investing in a stock, and we’ve spotted 2 warning signs for ReWalk Robotics that potential shareholders should take into account before putting money into a 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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