Yahoo Finance Here's Why We're Not At All Concerned With Inspire Medical Systems' (NYSE:INSP) Cash Burn Situation
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So, the natural question for Inspire Medical Systems (NYSE:INSP) shareholders is whether they should be concerned by its rate of 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for Inspire Medical Systems
When Might Inspire Medical Systems Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Inspire Medical Systems last reported its balance sheet in September 2022, it had zero debt and cash worth US$428m. Importantly, its cash burn was US$14m over the trailing twelve months. That means it had a cash runway of very many years as of September 2022. Importantly, though, analysts think that Inspire Medical Systems will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Inspire Medical Systems Growing?
It was fairly positive to see that Inspire Medical Systems reduced its cash burn by 54% during the last year. And arguably the operating revenue growth of 73% was even more impressive. Overall, we'd say its growth is rather impressive. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
Can Inspire Medical Systems Raise More Cash Easily?
While Inspire Medical Systems seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
Inspire Medical Systems' cash burn of US$14m is about 0.2% of its US$6.0b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.
How Risky Is Inspire Medical Systems' Cash Burn Situation?
As you can probably tell by now, we're not too worried about Inspire Medical Systems' cash burn. For example, we think its revenue growth suggests that the company is on a good path. And even its cash burn reduction was very encouraging. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Inspire Medical Systems that investors should know when investing in the stock.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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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