Stock Analysis

Infinity Pharmaceuticals (NASDAQ:INFI) Is In A Good Position To Deliver On Growth Plans

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NasdaqGS:INFI
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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. By way of example, Infinity Pharmaceuticals (NASDAQ:INFI) has seen its share price rise 198% over the last year, delighting many shareholders. 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.

Given its strong share price performance, we think it's worthwhile for Infinity Pharmaceuticals shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Infinity Pharmaceuticals

How Long Is Infinity Pharmaceuticals' Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In March 2021, Infinity Pharmaceuticals had US$107m in cash, and was debt-free. Importantly, its cash burn was US$37m over the trailing twelve months. That means it had a cash runway of about 2.9 years as of March 2021. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
NasdaqGS:INFI Debt to Equity History July 18th 2021

How Well Is Infinity Pharmaceuticals Growing?

On balance, we think it's mildly positive that Infinity Pharmaceuticals trimmed its cash burn by 6.2% over the last twelve months. On top of that, operating revenue was up 32%, making for a heartening combination On balance, we'd say the company is improving over time. 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.

Can Infinity Pharmaceuticals Raise More Cash Easily?

There's no doubt Infinity Pharmaceuticals seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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$227m, Infinity Pharmaceuticals' US$37m 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 Infinity Pharmaceuticals' Cash Burn A Worry?

The good news is that in our view Infinity Pharmaceuticals' cash burn situation gives shareholders real reason for optimism. Not only was its revenue growth quite good, but its cash runway was a real positive. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Infinity Pharmaceuticals (of which 1 is potentially serious!) you should know about.

Of course Infinity Pharmaceuticals 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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