Is Trevena (NASDAQ:TRVN) in a good position to realize its growth plans?
Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. For example, although software-as-a-service company Salesforce.com lost money for years as it grew recurring revenue, if you had held stock since 2005, you would have done very well. But while the success stories are well known, investors shouldn’t ignore the many, many unprofitable companies that simply burn all their money and crash.
So should Trevena (NASDAQ:TRVN) Are shareholders 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. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.
Check out our latest analysis for Trevena
When could Trevena run out of money?
A cash trail is defined as the length of time it would take a business to run out of cash if it continued to spend at its current rate of cash burn. When Trevena last published its balance sheet in September 2021, it had no debt and cash worth $79 million. Looking at last year, the company burned 45 million US dollars. So there was a cash trail of about 21 months from September 2021. While that cash trail isn’t too much of a concern, sane holders would look away and consider what would happen if the business ran out of cash. money. The image below shows how his cash balance has changed over the past few years.
How is Trevena’s cash burn changing over time?
In our view, Trevena is not yet generating significant operating revenue, having reported only US$637,000 over the past twelve months. Therefore, for the purposes of this analysis, we will focus on how cash burn is tracked. In fact, he has dramatically increased his spending over the past year, increasing cash burn by 112%. This type of spending growth rate cannot continue for very long before causing balance sheet weakness, generally speaking. 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 analysts’ forecasts for the company.
How difficult would it be for Trevena to raise more cash for growth?
Given its cash burn trajectory, Trevena shareholders may want to consider how easily it could raise more cash, despite its strong cash trail. Companies can raise capital either through debt or equity. Typically, a company will sell new stock on its own to raise cash and drive growth. By looking at a company’s cash burn relative to its market capitalization, we gain insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.
With a market capitalization of $89 million, Trevena’s cash burn of $45 million is about 50% of its market value. These are high expenses relative to the value of the entire company, so if it has to issue stock to fund further growth, it could end up hurting shareholder returns significantly (through significant dilution).
How risky is Trevena’s cash burn situation?
Even though his increasing consumption of cash makes us a bit nervous, we are bound to mention that we thought Trevena’s cash lead was quite promising. Looking at the factors mentioned in this short report, we think its cash burn is a bit risky, and that makes us slightly nervous about the stock. Taking a deeper dive, we spotted 5 warning signs for Trevena you should be aware, and one of them is concerning.
Sure Trevena may not be the best stock to buy. So you might want to see this free collection of companies offering a high return on equity, or this list of stocks that insiders buy.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.