Stock Analysis

Here's Why We're Not Too Worried About Capricor Therapeutics' (NASDAQ:CAPR) Cash Burn Situation

NasdaqCM:CAPR
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Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Capricor Therapeutics (NASDAQ:CAPR) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Capricor Therapeutics

How Long Is Capricor Therapeutics' 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. In June 2023, Capricor Therapeutics had US$38m in cash, and was debt-free. Looking at the last year, the company burnt through US$21m. Therefore, from June 2023 it had roughly 22 months of cash runway. 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.

debt-equity-history-analysis
NasdaqCM:CAPR Debt to Equity History August 13th 2023

How Hard Would It Be For Capricor Therapeutics To Raise More Cash For Growth?

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 looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Capricor Therapeutics has a market capitalisation of US$156m and burnt through US$21m last year, which is 13% of the company's 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.

Is Capricor Therapeutics' Cash Burn A Worry?

Because Capricor Therapeutics is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. And it is worth keeping in mind that early stage companies are generally more risky than well established ones. To be frank most cash burning companies are relatively risky, but this one seems safer than most, in our view. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Capricor Therapeutics that investors should know when investing in the stock.

Of course Capricor 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.

Valuation is complex, but we're helping make it simple.

Find out whether Capricor Therapeutics is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.