There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for Corbus Pharmaceuticals Holdings (NASDAQ:CRBP) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.
Does Corbus Pharmaceuticals Holdings Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. Corbus Pharmaceuticals Holdings has such a small amount of debt that we'll set it aside, and focus on the US$63m in cash it held at June 2020. Looking at the last year, the company burnt through US$97m. So it had a cash runway of approximately 8 months from June 2020. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Corbus Pharmaceuticals Holdings Growing?
One thing for shareholders to keep front in mind is that Corbus Pharmaceuticals Holdings increased its cash burn by 226% in the last twelve months. That's pretty alarming given that operating revenue dropped 79% over the last year, though the business is likely attempting a strategic pivot. Considering these two factors together makes us nervous about the direction the company seems to be heading. 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 Hard Would It Be For Corbus Pharmaceuticals Holdings To Raise More Cash For Growth?
Since Corbus Pharmaceuticals Holdings' revenue is down, and its cash burn is up, shareholders would quite reasonably be considering whether it can raise more money easily, if need be. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.
Corbus Pharmaceuticals Holdings' cash burn of US$97m is about 76% of its US$128m market capitalisation. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.
So, Should We Worry About Corbus Pharmaceuticals Holdings' Cash Burn?
There are no prizes for guessing that we think Corbus Pharmaceuticals Holdings' cash burn is a bit of a worry. Take, for example, its increasing cash burn, which suggests the company may have difficulty funding itself, in the future. While not as bad as its increasing cash burn, its cash runway is also a concern, and considering everything mentioned above, we're struggling to find much to be optimistic about. Looking at the metrics in this article all together, we consider its cash burn situation to be rather dangerous, and likely to cost shareholders one way or the other. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Corbus Pharmaceuticals Holdings (of which 1 is a bit concerning!) you should know about.
Of course Corbus Pharmaceuticals Holdings 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.
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This article by Simply Wall St is general in nature. 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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