CRISPR Therapeutics (NASDAQ:CRSP) Is In A Good Position To Deliver On Growth Plans

We can readily understand why investors are attracted to unprofitable companies. 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 CRISPR Therapeutics (NASDAQ:CRSP) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for CRISPR Therapeutics

When Might CRISPR Therapeutics Run Out Of Money?

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 June 2023, CRISPR Therapeutics had cash of US$1.8b and no debt. Importantly, its cash burn was US$363m over the trailing twelve months. Therefore, from June 2023 it had 4.9 years of cash runway. Importantly, though, analysts think that CRISPR Therapeutics will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

How Well Is CRISPR Therapeutics Growing?

We reckon the fact that CRISPR Therapeutics managed to shrink its cash burn by 30% over the last year is rather encouraging. But this achievement is overshadowed by the brilliant operating revenue growth of 1,048%. It seems to be growing nicely. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

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

While CRISPR Therapeutics seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of US$3.1b, CRISPR Therapeutics' US$363m in cash burn equates to about 12% of its 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 CRISPR Therapeutics' Cash Burn A Worry?

As you can probably tell by now, we're not too worried about CRISPR Therapeutics' cash burn. For example, we think its revenue growth suggests that the company is on a good path. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. An in-depth examination of risks revealed 1 warning sign for CRISPR Therapeutics that readers should think about before committing capital to this stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.