Is Geron (NASDAQ:GERN) 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 note that Geron Corporation (NASDAQ:GERN) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Geron Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Geron had US$118.5m of debt, an increase on US$81.9m, over one year. However, its balance sheet shows it holds US$406.6m in cash, so it actually has US$288.1m net cash.

A Look At Geron's Liabilities

Zooming in on the latest balance sheet data, we can see that Geron had liabilities of US$88.3m due within 12 months and liabilities of US$225.2m due beyond that. Offsetting these obligations, it had cash of US$406.6m as well as receivables valued at US$38.8m due within 12 months. So it actually has US$131.9m more liquid assets than total liabilities.

It's good to see that Geron has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Geron 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 ultimately the future profitability of the business will decide if Geron can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for Geron

In the last year Geron wasn't profitable at an EBIT level, but managed to grow its revenue by 32,387%, to US$77m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Geron?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Geron lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$219m of cash and made a loss of US$175m. However, it has net cash of US$288.1m, so it has a bit of time before it will need more capital. The good news for shareholders is that Geron has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Geron that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.