We Think ImmunoPrecise Antibodies (CVE:IPA) Needs To Drive Business Growth Carefully

Just because a business does not make any money, does not mean that the stock will go down. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for ImmunoPrecise Antibodies (CVE:IPA) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for ImmunoPrecise Antibodies

Does ImmunoPrecise Antibodies Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In July 2022, ImmunoPrecise Antibodies had CA$19m in cash, and was debt-free. Looking at the last year, the company burnt through CA$20m. That means it had a cash runway of around 11 months as of July 2022. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.

How Well Is ImmunoPrecise Antibodies Growing?

One thing for shareholders to keep front in mind is that ImmunoPrecise Antibodies increased its cash burn by 447% in the last twelve months. While operating revenue was up over the same period, the 3.9% gain gives us scant comfort. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can ImmunoPrecise Antibodies Raise Cash?

Since ImmunoPrecise Antibodies has been boosting its cash burn, the market will likely be considering how it can raise more cash if need be. 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 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).

ImmunoPrecise Antibodies has a market capitalisation of CA$183m and burnt through CA$20m last year, which is 11% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

How Risky Is ImmunoPrecise Antibodies' Cash Burn Situation?

On this analysis of ImmunoPrecise Antibodies' cash burn, we think its cash burn relative to its market cap was reassuring, while its increasing cash burn has us a bit worried. Summing up, we think the ImmunoPrecise Antibodies' cash burn is a risk, based on the factors we mentioned in this article. On another note, ImmunoPrecise Antibodies has 3 warning signs (and 2 which can't be ignored) we think you should know about.

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.

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This 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.