Superconductor Technologies Case Study

Superconductor Technologies Inc. (NASDAQ:SCON) seems to be forming a pattern of major movements, providing only some crumbs of outlook for market participants trying to figure out its next move. Now trading with a market value of 12.38M, the company has a mix of catalysts and obstacles that spring from the nature of its operations. As the day-to-day narrative ebbs and flows for this company, it is more important than ever to step back and get a bird’s eye view of the fundamental reality under the surface of this story.

Superconductor Technologies Inc. (NASDAQ:SCON) Fundamentals That Matter

It’s generally a good idea to start with the most fundamental piece of the picture: the balance sheet. The balance sheet health of any company plays a key role in its ability to meet its obligations and maintain the faith of its investment base. For SCON, the company currently has 6.46 million of cash on the books. The trend over time is important to note. In this case, the company’s debt has been growing. The company also has 10.23 million in total assets, balanced by 896,000 in total liabilities, which should give you a sense of the viability of the company under any number of imagined business contexts.

Superconductor Technologies Inc. (SCON) saw -2.15 million in free cash flow last quarter, representing a quarterly net change in cash of -1.95 million. Perhaps most importantly where cash movements are concerned, the company saw about -2.11 million in net operating cash flow.

Superconductor Technologies Inc. (NASDAQ:SCON) Revenue Growth Potential

As far as key trends that demonstrate something of the future investment potential of this stock, we need to take a closer look at the top line, first and foremost. Last quarter, the company saw 8,000 in total revenues. That represents a quarterly year/year change in revenues of 0.00 in sequential terms, the SCON saw sales decline by 0.00.

But what about the bottom line? After all, that’s what really matters in the end. Superconductor Technologies Inc. (SCON) is intriguing when broken down to its core data. The cost of selling goods last quarter was 769,000, yielding a gross basic income of -761,000 . For shareholders, given the total diluted outstanding shares of 10.7 million, this means overall earnings per share of -0.24. Note, this compares with a consensus analyst forecast of -0.25 in earnings per share for its next fiscal quarterly report.

Is Superconductor Technologies Inc. (NASDAQ:SCON) Valuation Attractive

Looking ahead at valuations, according to the consensus, the next fiscal year is forecast to bring about -0.3 in total earnings per share. If we consider a median price to earnings ratio on the stock, that corresponds with a stock price of 9,999. However, one should always remember: the trends are more important than the forecasts. This continues to be an interesting story, and we look forward to updating it again soon on Superconductor Technologies Inc..

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Superconductor Technologies Inc (NASDAQ:SCON) continues its loss-making streak, announcing negative earnings for its latest financial year ending. The single most important question to ask when you’re investing in a loss-making company is – will they need to raise cash again, and if so, when? This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that Superconductor Technologies is spending more money than it earns, it will need to fund its expenses via external sources of capital. Today I’ve examined Superconductor Technologies’s financial data from its most recent earnings update, to roughly assess when the company may need to raise new capital. See our latest analysis for Superconductor Technologies

What is cash burn?

Superconductor Technologies’s expenses are currently higher than the money it makes from its day-to-day operations, which means it is funding its overhead with equity capital a.k.a. its cash. With a negative operating cash flow of -$7.98M, Superconductor Technologies is chipping away at its $4.68M cash reserves in order to run its business. The cash burn rate refers to the rate at which the company uses up its supply of cash over time. The riskiest factor facing investors of the company is the potential for the company to run out of cash without the ability to raise more money, i.e. the company goes out of business. Unprofitable companies operating in the exciting, fast-growing tech industry often face this problem, and Superconductor Technologies is no exception. These businesses operate in a highly competitive environment and face running down its cash holdings too fast in order to keep up with innovation.

When will Superconductor Technologies need to raise more cash?

Opex, or operational expenses, are the necessary costs Superconductor Technologies must pay to keep the business running every day. For the purpose of this calculation I’ve only accounted for sales, general and admin (SG&A) expenses, and R&D expenses incurred within this year. In Superconductor Technologies’s case, its opex fell by 8.02% last year, which may signal the company moving towards a more sustainable level of expenses. However, even with declining costs, the current level of cash is not enough to sustain Superconductor Technologies’s operations and the company may need to come to market to raise more capital within the year. Even though this is analysis is fairly basic, and Superconductor Technologies still can cut its overhead further, or raise debt capital instead of coming to equity markets, the outcome of this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.

What this means for you:

Are you a shareholder? Superconductor Technologies is inherently risky due to its current cash flow position. It is loss making and it is also burning through its cash at a fast rate. You now have a better understanding of the risks you may face holding onto the stock, since we know the company could potentially run into some issues in the next couple of months. In addition to this analysis, I suggest you take a look at their expected revenue growth to determine the timing of future profitability as well.

Are you a potential investor? Loss-making companies are a risky play, even those that are reducing their opex over time. Though, this shouldn’t discourage you from considering entering the stock in the future. The cash burn analysis result indicates a cash constraint for the company, due to its current level of cash reserves. An opportunity may exist for you to enter into the stock at an attractive price, should Superconductor Technologies come to market to fund its operations.

An experienced management team on the helm increases our confidence in the business – take a look at who sits on Superconductor Technologies’s board and the CEO’s back ground and experience here. If risky loss-making stocks do not appeal to you, see my list of highly profitable companies to add to your portfolio..

NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2017. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.

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