We Think Celldex Therapeutics (NASDAQ:CLDX) Can Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Celldex Therapeutics (NASDAQ:CLDX) shareholders is whether they should be concerned by its rate of 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Celldex Therapeutics

SWOT Analysis for Celldex Therapeutics

When Might Celldex Therapeutics Run Out Of Money?

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 March 2023, Celldex Therapeutics had US$278m in cash, and was debt-free. Importantly, its cash burn was US$110m over the trailing twelve months. Therefore, from March 2023 it had 2.5 years of cash runway. Importantly, analysts think that Celldex Therapeutics will reach cashflow breakeven in 4 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Celldex Therapeutics Growing?

Celldex Therapeutics boosted investment sharply in the last year, with cash burn ramping by 60%. While that's concerning on it's own, the fact that operating revenue was actually down 24% over the same period makes us positively tremulous. Considering both these metrics, we're a little concerned about how the company is developing. 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 Celldex Therapeutics Raise Cash?

Celldex Therapeutics seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.

Celldex Therapeutics' cash burn of US$110m is about 6.5% of its US$1.7b market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Celldex Therapeutics' Cash Burn A Worry?

On this analysis of Celldex Therapeutics' cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Celldex Therapeutics' situation. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Celldex Therapeutics that potential shareholders should take into account before putting money into a stock.

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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.