We're Hopeful That Celldex Therapeutics (NASDAQ:CLDX) Will Use Its Cash Wisely

Just because a business does not make any money, does not mean that the stock will go down. Indeed, Celldex Therapeutics (NASDAQ:CLDX) stock is up 756% in the last year, providing strong gains for shareholders. 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.

In light of its strong share price run, we think now is a good time to investigate how risky Celldex Therapeutics' cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Celldex Therapeutics

How Long Is Celldex Therapeutics' Cash Runway?

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. As at September 2020, Celldex Therapeutics had cash of US$200m and no debt. In the last year, its cash burn was US$48m. So it had a cash runway of about 4.2 years from September 2020. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.

How Well Is Celldex Therapeutics Growing?

Celldex Therapeutics reduced its cash burn by 7.7% during the last year, which points to some degree of discipline. However, operating revenue was basically flat over that time period. In light of the data above, we're fairly sanguine about the business growth trajectory. 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 Celldex Therapeutics Raise More Cash Easily?

There's no doubt Celldex Therapeutics seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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. 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 has a market capitalisation of US$793m and burnt through US$48m last year, which is 6.0% of the company's market value. 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?

It may already be apparent to you that we're relatively comfortable with the way Celldex Therapeutics is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. Its weak point is its revenue growth, but even that wasn't too bad! Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, Celldex Therapeutics has 4 warning signs (and 2 which are significant) we think you should know about.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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