Can Cue Health (NASDAQ:HLTH) Afford To Invest In Growth?

It is undeniable that one can generate wealth by possessing stocks of unprofitable enterprises. For instance, despite Amazon.com experiencing financial losses for an extended period after going public, had you purchased and retained the shares since 1999, you would have amassed a great fortune. However, despite the popularity of such success stories, investors must not disregard the numerous unprofitable companies that exhaust all their funds and ultimately fail.

Should shareholders of Cue Health (NASDAQ:HLTH) be concerned about the depletion of its cash reserves? In this blog, we will delve into the concept of cash burn, which pertains to the yearly rate at which a non-profitable company utilizes its cash reserves to support its expansion. First and foremost, let's analyze the company's available cash in relation to its cash burn.

Take a look at our most recent examination of Cue Health

Cue Health's Cash Runway: How Long?

Cue Health's ability to stay afloat financially is determined by its cash reserves and its rate of spending that cash. By March 2023, the company had $178 million in cash and no debt. In the past year, Cue Health used up $255 million of its cash reserves. This means that as of March 2023, the company had enough cash to last for approximately 8 more months. It's important to note that experts predict Cue Health will start generating positive cash flow within the next 4 years. However, if the company doesn't reduce its spending soon, it may need to find additional sources of cash. The graph below shows how Cue Health's cash balance has changed over time.

Cue Health's Impressive Growth

Shareholders should be mindful of the fact that Cue Health experienced a significant increase in its cash expenditures by 525% within the past year. This is quite concerning especially when considering the decrease of 55% in operating revenue during the same period. However, it is possible that the company is making a deliberate shift in strategy. The combination of these factors raises our concerns about the company's future trajectory. Although studying the past is valuable, the most crucial aspect is to focus on the future. To gain a better understanding, it would be wise to review the predictions of our analysts for the company.

Could Cue Health Easily Raise More Funds?

Given that Cue Health is currently experiencing a decrease in revenue and an increase in cash expenditure, it is understandable that shareholders may be questioning the company's ability to obtain additional funding if necessary. The most typical methods for a publicly traded company to secure more funding for its operations are through issuing new shares or taking on debt. One of the primary advantages of being listed on the stock market is the ability to sell shares to investors in order to generate capital and support expansion. By analyzing the extent to which a company's cash expenditure surpasses its market value, we can determine the potential impact on shareholders in terms of dilution if the company were to seek sufficient funds to cover another year's cash depletion.

Cue Health's spending rate of US$255 million is roughly 396% of its market worth, which is only valued at US$64 million. Considering the drastic difference between the company's expenses and its market value, we believe there is an increased probability of financial trouble, and we would be extremely hesitant to invest in this stock.

Should We Be Concerned About Cue Health's Cash Burn?

It's pretty concerning to see how much money Cue Health is spending without any real rewards. When we look at their cash burn compared to their market value, it indicates that they might struggle to find funding in the future. While their cash runway is not as alarming as their cash burn in relation to their market value, it's still a negative sign. In fact, all the factors we discussed in this article give us cause for concern. However, shareholders can find some comfort in the fact that analysts predict the company will break even. Taking all the metrics into account, we believe that Cue Health's cash burn situation is risky and will likely have consequences for shareholders. Additionally, we want to point out that Cue Health has 5 warning signs (and 1 important one) that we believe you should be aware of.

If you would rather explore a different business with stronger foundations, then don't overlook this complimentary compilation of fascinating businesses, that possess a HIGH return on equity and limited debt or this inventory of stocks which are all predicted to expand.

Making Valuation Simple - Our Expertise

Discover if Cue Health is potentially over or undervalued by reviewing our extensive analysis, encompassing fair value approximations, potential risks, cautions, dividend information, insider transactions, and overall financial well-being.

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This blog post from Simply Wall St is of a broad nature. We offer insights based on past information and predictions from analysts, using a fair approach. Our articles should not be considered as financial guidance, as they do not provide recommendations to purchase or sell stocks, nor do they consider your goals or financial circumstances. Our goal is to present you with in-depth analysis driven by fundamental data, focused on the long-term. Please note that our analysis may not include the most recent company announcements that affect stock prices or qualitative materials. Simply Wall St does not hold any positions in the stocks mentioned.