We're Hopeful That Editas Medicine (NASDAQ:EDIT) Will Use Its Cash Wisely

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Editas Medicine (NASDAQ:EDIT) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Editas Medicine

Advertisement

Does Editas Medicine Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In December 2019, Editas Medicine had US$457m in cash, and was debt-free. Looking at the last year, the company burnt through US$47m. Therefore, from December 2019 it had 9.8 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. You can see how its cash balance has changed over time in the image below.

NasdaqGS:EDIT Historical Debt April 21st 2020
NasdaqGS:EDIT Historical Debt April 21st 2020

How Well Is Editas Medicine Growing?

Editas Medicine reduced its cash burn by 7.2% during the last year, which points to some degree of discipline. Unfortunately, however, operating revenue declined by 36% during the period. Considering both these metrics, we're a little concerned about how the company is developing. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Editas Medicine Raise More Cash Easily?

Editas Medicine seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Editas Medicine has a market capitalisation of US$1.3b and burnt through US$47m last year, which is 3.5% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is Editas Medicine's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Editas Medicine's cash burn. For example, we think its cash runway suggests that the company is on a good path. Although its falling revenue does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Editas Medicine (1 is concerning!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

About NasdaqGS:EDIT

Editas Medicine

A clinical stage genome editing company, focuses on developing transformative genomic medicines to treat a range of serious diseases.

Flawless balance sheet with slight risk.

Advertisement

Weekly Picks

DA
davidlsander
NAUF.F logo
davidlsander on Nevgold ·

The U.S. Government Is Desperate for This Metal. This Tiny Miner Has It -- Its Closest Peer Is Already Worth Double.

Fair Value:US$2.1944.7% undervalued
25 users have followed this narrative
0 users have commented on this narrative
2 users have liked this narrative
BE
PYPL logo
benjamin_lvieq on PayPal Holdings ·

PayPal: PayPal Doesn't Need to Grow – It Needs to Stop Falling – A Mispriced Cash Machine With a Cannibal Buyback

Fair Value:US$6512.7% undervalued
56 users have followed this narrative
2 users have commented on this narrative
9 users have liked this narrative
JD
CELH logo
JD009 on Celsius Holdings ·

From $5M to $2B: Why the 2024 Crash Was the Best Buying Opportunity in Consumer Stocks

Fair Value:US$55.4345.9% undervalued
19 users have followed this narrative
1 users have commented on this narrative
8 users have liked this narrative
WA
ACN logo
Wavefarer on Accenture ·

High-quality global services company facing an AI-driven valuation reset.

Fair Value:US$30152.0% undervalued
16 users have followed this narrative
0 users have commented on this narrative
5 users have liked this narrative

Updated Narratives

RI
IREN logo
Ricktorious on IREN ·

IREN: AI Infrastructure Growth vs. Valuation Risk

Fair Value:US$120.0771.0% undervalued
2 users have followed this narrative
0 users have commented on this narrative
0 users have liked this narrative
BL
BlackGoat
IREN logo
BlackGoat on IREN ·

IREN's Bold Moves in Sustainable Bitcoin Mining & AI Data Centers

Fair Value:US$71.4851.3% undervalued
200 users have followed this narrative
16 users have commented on this narrative
0 users have liked this narrative
RD
FTNT logo
rdiab on Fortinet ·

FTNT Is The Cybersecurity Powerhouse A Buy?

Fair Value:US$125.5628.1% overvalued
1 users have followed this narrative
0 users have commented on this narrative
0 users have liked this narrative

Popular Narratives

IN
Investingwilly
MA logo
Investingwilly on Mastercard ·

Mastercard: The Best Dividend Stock You're Ignoring

Fair Value:US$75026.5% undervalued
93 users have followed this narrative
1 users have commented on this narrative
9 users have liked this narrative
BL
BlackGoat
CBRS logo
BlackGoat on Cerebras Systems ·

The Wafer Giant Threatening NVIDIA's GPU Hegemony

Fair Value:US$415.5456.6% undervalued
63 users have followed this narrative
3 users have commented on this narrative
11 users have liked this narrative
BE
PYPL logo
benjamin_lvieq on PayPal Holdings ·

PayPal: PayPal Doesn't Need to Grow – It Needs to Stop Falling – A Mispriced Cash Machine With a Cannibal Buyback

Fair Value:US$6512.7% undervalued
56 users have followed this narrative
2 users have commented on this narrative
9 users have liked this narrative