We're Not Worried About Beam Therapeutics' (NASDAQ:BEAM) Cash Burn

Just because a business does not make any money, does not mean that the stock will go down. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Beam Therapeutics (NASDAQ:BEAM) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. 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 Beam Therapeutics

When Might Beam Therapeutics Run Out Of Money?

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. When Beam Therapeutics last reported its March 2024 balance sheet in May 2024, it had zero debt and cash worth US$1.1b. Importantly, its cash burn was US$169m over the trailing twelve months. That means it had a cash runway of about 6.5 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. You can see how its cash balance has changed over time in the image below.

How Well Is Beam Therapeutics Growing?

It was fairly positive to see that Beam Therapeutics reduced its cash burn by 52% during the last year. But this achievement is overshadowed by the brilliant operating revenue growth of 371%. Overall, we'd say its growth is rather impressive. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Beam Therapeutics Raise More Cash Easily?

We are certainly impressed with the progress Beam Therapeutics has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund 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. Many companies end up issuing new shares to fund future 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.

Beam Therapeutics' cash burn of US$169m is about 10% of its US$1.7b 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 Beam Therapeutics' Cash Burn Situation?

As you can probably tell by now, we're not too worried about Beam Therapeutics' cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. And even though its cash burn relative to its market cap wasn't quite as impressive, it was still a positive. 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. On another note, Beam Therapeutics has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Of course Beam Therapeutics 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.

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.