Is Chimerix (NASDAQ:CMRX) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Chimerix, Inc. (NASDAQ:CMRX) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Chimerix

What Is Chimerix's Debt?

The image below, which you can click on for greater detail, shows that at June 2021 Chimerix had debt of US$14.0m, up from none in one year. However, it does have US$132.0m in cash offsetting this, leading to net cash of US$118.0m.

How Strong Is Chimerix's Balance Sheet?

We can see from the most recent balance sheet that Chimerix had liabilities of US$24.9m falling due within a year, and liabilities of US$2.65m due beyond that. Offsetting these obligations, it had cash of US$132.0m as well as receivables valued at US$36.0k due within 12 months. So it can boast US$104.5m more liquid assets than total liabilities.

It's good to see that Chimerix has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Chimerix boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Chimerix'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 Chimerix had a loss before interest and tax, and actually shrunk its revenue by 60%, to US$4.6m. To be frank that doesn't bode well.

So How Risky Is Chimerix?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Chimerix had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$68m of cash and made a loss of US$138m. However, it has net cash of US$118.0m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Chimerix that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.
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