We're Hopeful That Adaptive Biotechnologies (NASDAQ:ADPT) Will Use Its Cash Wisely

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should Adaptive Biotechnologies (NASDAQ:ADPT) 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.

Check out our latest analysis for Adaptive Biotechnologies

SWOT Analysis for Adaptive Biotechnologies

When Might Adaptive Biotechnologies Run Out Of Money?

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. When Adaptive Biotechnologies last reported its balance sheet in December 2022, it had zero debt and cash worth US$498m. Looking at the last year, the company burnt through US$200m. Therefore, from December 2022 it had 2.5 years of cash runway. That's decent, giving the company a couple years to develop its business. However, if we extrapolate the company's recent cash burn trend, then it would have a longer cash run way. You can see how its cash balance has changed over time in the image below.

How Well Is Adaptive Biotechnologies Growing?

We reckon the fact that Adaptive Biotechnologies managed to shrink its cash burn by 21% over the last year is rather encouraging. And considering that its operating revenue gained 20% during that period, that's great to see. 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. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Adaptive Biotechnologies Raise More Cash Easily?

While Adaptive Biotechnologies seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

Since it has a market capitalisation of US$1.1b, Adaptive Biotechnologies' US$200m in cash burn equates to about 18% of its 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.

So, Should We Worry About Adaptive Biotechnologies' Cash Burn?

Adaptive Biotechnologies appears to be in pretty good health when it comes to its cash burn situation. One the one hand we have its solid revenue growth, while on the other it can also boast very strong cash runway. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. An in-depth examination of risks revealed 2 warning signs for Adaptive Biotechnologies that readers should think about before committing capital to this stock.

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)

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.