Is Harpoon Therapeutics (NASDAQ:HARP) In A Good Position To Invest In Growth?

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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.

So should Harpoon Therapeutics (NASDAQ:HARP) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Harpoon Therapeutics

When Might Harpoon Therapeutics Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In September 2021, Harpoon Therapeutics had US$151m in cash, and was debt-free. Looking at the last year, the company burnt through US$121m. Therefore, from September 2021 it had roughly 15 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. You can see how its cash balance has changed over time in the image below.

Is Harpoon Therapeutics' Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Harpoon Therapeutics actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Happily for shareholders, the revenue is up a stonking 120% over the last year. 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 Easily Can Harpoon Therapeutics Raise Cash?

While Harpoon Therapeutics' revenue growth truly does shine bright, it's important not to ignore the possibility that it might need more cash, at some point, even if only to optimise its growth plans. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Harpoon Therapeutics' cash burn of US$121m is about 91% of its US$132m market capitalisation. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

So, Should We Worry About Harpoon Therapeutics' Cash Burn?

On this analysis of Harpoon Therapeutics' cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. Summing up, we think the Harpoon Therapeutics' cash burn is a risk, based on the factors we mentioned in this article. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Harpoon Therapeutics that investors should know when investing in the stock.

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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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.