We Think MaxCyte (LON:MXCT) Can Afford To Drive Business Growth

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. By way of example, MaxCyte (LON:MXCT) has seen its share price rise 112% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky MaxCyte's cash burn is. 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for MaxCyte

How Long Is MaxCyte's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When MaxCyte last reported its balance sheet in September 2021, it had zero debt and cash worth US$256m. Looking at the last year, the company burnt through US$15m. So it had a very long cash runway of many years from September 2021. 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.

How Well Is MaxCyte Growing?

Some investors might find it troubling that MaxCyte is actually increasing its cash burn, which is up 44% in the last year. The silver lining is that revenue was up 33%, showing the business is growing at the top line. On balance, we'd say the company is improving over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For MaxCyte To Raise More Cash For Growth?

There's no doubt MaxCyte seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

MaxCyte has a market capitalisation of US$1.3b and burnt through US$15m last year, which is 1.2% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

Is MaxCyte's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way MaxCyte is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking a deeper dive, we've spotted 5 warning signs for MaxCyte you should be aware of, and 1 of them shouldn't be ignored.

Of course MaxCyte may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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.

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