Stock Analysis

Is Bicycle Therapeutics (NASDAQ:BCYC) A Risky Investment?

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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Bicycle Therapeutics plc (NASDAQ:BCYC) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Bicycle Therapeutics

How Much Debt Does Bicycle Therapeutics Carry?

The image below, which you can click on for greater detail, shows that at September 2020 Bicycle Therapeutics had debt of US$14.4m, up from none in one year. However, it does have US$149.8m in cash offsetting this, leading to net cash of US$135.4m.

NasdaqGS:BCYC Debt to Equity History February 23rd 2021

How Strong Is Bicycle Therapeutics' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bicycle Therapeutics had liabilities of US$17.0m due within 12 months and liabilities of US$43.5m due beyond that. Offsetting this, it had US$149.8m in cash and US$8.80m in receivables that were due within 12 months. So it can boast US$98.1m more liquid assets than total liabilities.

This excess liquidity suggests that Bicycle Therapeutics is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Bicycle Therapeutics has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Bicycle Therapeutics's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Bicycle Therapeutics wasn't profitable at an EBIT level, but managed to grow its revenue by 23%, to US$12m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Bicycle Therapeutics?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Bicycle Therapeutics lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$7.2m of cash and made a loss of US$38m. But the saving grace is the US$135.4m on the balance sheet. That means it could keep spending at its current rate for more than two years. Bicycle Therapeutics's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Bicycle Therapeutics has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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What are the risks and opportunities for Bicycle Therapeutics?

Bicycle Therapeutics plc, a clinical-stage biopharmaceutical company, develops a class of medicines for diseases that are underserved by existing therapeutics.

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  • Revenue is forecast to grow 61.61% per year


  • Currently unprofitable and not forecast to become profitable over the next 3 years

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