Just because a company isn’t making money doesn’t mean the stock will fall. For example, although Amazon.com was loss-making for many years after it went public, if you had bought and held the stock since 1999, you would have made a fortune. But while history celebrates these rare successes, the failures are often forgotten; who remembers Pets.com?

This should also Genelux (NASDAQ:GNLX) shareholders are concerned about cash burn? In this report, we will look at the company’s annual negative free cash flow, which is referred to as its “cash burn”. Let’s start by examining the company’s cash holdings relative to its cash burn.

Check out our latest analysis for Genelux

Does Genelux have a long liquidity reserve?

A company’s cash runway is calculated by dividing its cash balance by its cash burn. In June 2024, Genelux had cash of $34 million and no debt. Importantly, its cash burn over the trailing twelve months was $22 million. Therefore, as of June 2024, it had about 18 months of cash runway. Specifically, analysts forecast Genelux to break even (at a free cash flow level) in about 4 years. Essentially, this means the company will either reduce its cash burn or need more cash. You can see how its cash balances have changed over time in the image below.

How does Genelux’s cash burn change over time?

In our view, Genelux is not yet generating significant operating income, with the company recording just US$8k over the last twelve months. As a result, we think it’s too early to focus on revenue growth, so we’ll limit ourselves to examining how cash burn changes over time. In fact, over the last year, cash burn has increased by a significant 53%. Often, increased cash burn simply means a company is accelerating its business development, but one should always be aware that this shrinks the cash runway. While it’s always worth studying the past, it’s the future that matters most, and for that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Genelux easily raise more money?

Given the cash burn trend, Genelux shareholders should consider how easily the company could raise even more cash despite its solid cash reserves. Issuing new shares or taking on debt are the most common methods for publicly traded companies to raise more money for their business. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise money and fund growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company running for another year (assuming the same burn rate).

Since Genelux’s market cap is $73 million, its $22 million cash burn represents about 30 percent of its market value. That’s not insignificant, and at the current share price, if the company had to sell enough shares to fund another year’s growth, it would likely incur fairly costly dilution.

So should we be worried about Genelux’s cash burn?

After this analysis of Genelux’s cash burn, we find the cash runway to be reassuring, while the increasing cash burn is a bit concerning. Shareholders can take comfort in the fact that analysts are forecasting the company to break even. Even though we don’t think the company has a problem with its cash burn, the analysis we have done in this article suggests that shareholders should carefully consider the potential cost of raising more funds in the future. In addition, we have conducted an in-depth study of the company and found that 6 warning signs for Genelux (3 are a bit worrying!) that you should know about before investing here.

Naturally, If you look elsewhere, you may find a fantastic investment. So take a look at the free List of interesting companies and this list of growth stocks (according to analyst forecasts)

Do you have feedback on this article? Are you concerned about the content? Contact us directly from us. Alternatively, send an email to editorial-team (at) simplywallst.com.

This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.