9 hours ago
Provexis (LON:PXS) Is In A Strong Position To Grow Its Business
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether Provexis (LON:PXS) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
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You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In September 2024, Provexis had UK£478k in cash, and was debt-free. Looking at the last year, the company burnt through UK£113k. So it had a cash runway of about 4.2 years from September 2024. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.
See our latest analysis for Provexis
Although Provexis had revenue of UK£1.2m in the last twelve months, its operating revenue was only UK£1.2m in that time period. We don't think that's enough operating revenue for us to understand too much from revenue growth rates, since the company is growing off a low base. So we'll focus on the cash burn, today. Notably, its cash burn was actually down by 74% in the last year, which is a real positive in terms of resilience, but uninspiring when it comes to investment for growth. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic revenue growth shows how Provexis is building its business over time.
There's no doubt Provexis' rapidly reducing cash burn brings comfort, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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).
Since it has a market capitalisation of UK£16m, Provexis' UK£113k in cash burn equates to about 0.7% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
As you can probably tell by now, we're not too worried about Provexis' cash burn. For example, we think its cash runway suggests that the company is on a good path. But it's fair to say that its cash burn reduction was also very reassuring. Looking at all the measures in this article, together, we're not worried about its rate of cash burn, which seems to be under control. Taking a deeper dive, we've spotted 4 warning signs for Provexis you should be aware of, and 1 of them is a bit concerning.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
