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 Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should TaiGen Biopharmaceuticals Holdings (GTSM:4157) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
How Long Is TaiGen Biopharmaceuticals Holdings' Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. TaiGen Biopharmaceuticals Holdings has such a small amount of debt that we'll set it aside, and focus on the NT$331m in cash it held at December 2020. Importantly, its cash burn was NT$251m over the trailing twelve months. That means it had a cash runway of around 16 months as of December 2020. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.
How Is TaiGen Biopharmaceuticals Holdings' Cash Burn Changing Over Time?
In our view, TaiGen Biopharmaceuticals Holdings doesn't yet produce significant amounts of operating revenue, since it reported just NT$23m in the last twelve months. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 28% over the last year suggests some degree of prudence. Admittedly, we're a bit cautious of TaiGen Biopharmaceuticals Holdings due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.
How Hard Would It Be For TaiGen Biopharmaceuticals Holdings To Raise More Cash For Growth?
While TaiGen Biopharmaceuticals Holdings is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).
TaiGen Biopharmaceuticals Holdings has a market capitalisation of NT$17b and burnt through NT$251m last year, which is 1.5% 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 TaiGen Biopharmaceuticals Holdings' Cash Burn A Worry?
The good news is that in our view TaiGen Biopharmaceuticals Holdings' cash burn situation gives shareholders real reason for optimism. Not only was its cash burn reduction quite good, but its cash burn relative to its market cap was a real positive. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for TaiGen Biopharmaceuticals Holdings (2 shouldn't be ignored!) 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 companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)
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