Share Dilution

We believe GeoVax Labs (NASDAQ: GOVX) can afford to drive business growth

It is easy to understand why investors are attracted to unprofitable companies. For example, although Amazon.com suffered losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. That said, unprofitable businesses are risky because they could potentially spend all of their money and end up in distress.

In view of this risk, we thought to examine whether GeoVax Laboratories (NASDAQ: GOVX) shareholders should be concerned about its consumption of cash. In this report, we will consider the company’s annual negative free cash flow, which we now call “cash burn”. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash flow track.

See our latest review for GeoVax Labs

When could GeoVax Labs run out of money?

A company’s cash flow track is calculated by dividing its cash reserve by its cash consumption. As of September 2021, GeoVax Labs had US $ 18 million in cash and was debt free. Importantly, its cash consumption amounted to US $ 6.3 million over the past twelve months. So it had a cash flow trail of around 2.9 years as of September 2021. It’s decent, giving the company a few years to grow its business. Pictured below, you can see how his cash holdings have changed over time.

NasdaqCM: History of debt to equity of GOVX November 27, 2021

How does GeoVax Labs money consumption change over time?

In our opinion, GeoVax Labs is not yet producing significant operating revenues, having only brought in US $ 472,000 in the past twelve months. Therefore, for the purposes of this analysis, we will focus on monitoring cash consumption. Its cash consumption has exploded positively over the past year, up 318%. With this type of spending growth, her cash flow trail will quickly shorten, as she simultaneously uses her cash while increasing the depletion rate. 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 analyst forecast for the company.

How easily can GeoVax Labs raise funds?

Given its cash-consuming trajectory, GeoVax Labs shareholders may want to consider how easily it could raise more cash, despite its strong liquidity trail. Businesses can raise capital through debt or equity. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. By looking at a company’s cash consumption relative to its market capitalization, we get an idea of ​​how many shareholders would be diluted if the company needed to raise enough cash to cover a company’s cash consumption. other year.

Since it has a market capitalization of US $ 30 million, GeoVax Labs US $ 6.3 million of cash consumption is equivalent to approximately 21% of its market value. That’s not insignificant, and if the company were to sell enough stock to fund another year’s growth at the current share price, you’d likely see some pretty expensive dilution.

So, should we be concerned about the cash burn of GeoVax Labs?

Even though its growing consumption of cash is making us a little nervous, we’re forced to mention that we thought GeoVax Labs’ cash trail was relatively promising. Businesses that burn money are always on the riskier side of things, but after looking at all the factors discussed in this short article, we aren’t too concerned about its rate of cash consumption. Separately, we examined different risks affecting the business and identified 5 warning signs for GeoVax Labs (2 of which cannot be ignored!) that you should know.

Sure GeoVax Labs may not be the best stock to buy. So you might want to see this free a set of companies offering a high return on equity, or that list of stocks that insiders buy.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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