Companies Like AbCellera Biologics (NASDAQ:ABCL) Are In A Position To Invest In Growth

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should AbCellera Biologics (NASDAQ:ABCL) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for AbCellera Biologics

How Long Is AbCellera Biologics' Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When AbCellera Biologics last reported its March 2024 balance sheet in May 2024, it had zero debt and cash worth US$698m. Looking at the last year, the company burnt through US$128m. That means it had a cash runway of about 5.4 years as of March 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

Is AbCellera Biologics' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because AbCellera Biologics actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. The bad news for shareholders is that operating revenue actually plummeted 80% in the last year, which is a real concern in our view. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can AbCellera Biologics Raise Cash?

Given its problematic fall in revenue, AbCellera Biologics shareholders should consider how the company could fund its growth, if it turns out it needs more cash. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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).

AbCellera Biologics' cash burn of US$128m is about 11% of its US$1.1b market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

How Risky Is AbCellera Biologics' Cash Burn Situation?

On this analysis of AbCellera Biologics' cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. 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. Taking an in-depth view of risks, we've identified 1 warning sign for AbCellera Biologics that you should be aware of before investing.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.