Here's Why We're Not Too Worried About Icosavax's (NASDAQ:ICVX) Cash Burn Situation

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Icosavax (NASDAQ:ICVX) shareholders should 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Icosavax

Does Icosavax Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2022, Icosavax had US$261m in cash, and was debt-free. In the last year, its cash burn was US$54m. So it had a cash runway of about 4.9 years from March 2022. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.

How Well Is Icosavax Growing?

It was quite stunning to see that Icosavax increased its cash burn by 259% over the last year. While that certainly gives us pause for thought, we take a lot of comfort in the strong annual revenue growth of 76%. In light of the data above, we're fairly sanguine about the business growth trajectory. While the past is always worth studying, it is the future that matters most of all. 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 Icosavax To Raise More Cash For Growth?

We are certainly impressed with the progress Icosavax has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. 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. 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.

Since it has a market capitalisation of US$318m, Icosavax's US$54m in cash burn equates to about 17% of its market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is Icosavax's Cash Burn A Worry?

On this analysis of Icosavax's cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Icosavax's situation. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Icosavax (1 doesn't sit too well with us!) that you should be aware of before investing here.

Of course Icosavax 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. 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.