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

Just because a business does not make any money, does not mean that the stock will go down. Indeed, Infinity Pharmaceuticals (NASDAQ:INFI) stock is up 219% in the last year, providing strong gains for shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky Infinity Pharmaceuticals' cash burn is. 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.

Check out our latest analysis for Infinity Pharmaceuticals

Does Infinity Pharmaceuticals Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In December 2020, Infinity Pharmaceuticals had US$34m in cash, and was debt-free. Looking at the last year, the company burnt through US$36m. So it had a cash runway of approximately 11 months from December 2020. Importantly, analysts think that Infinity Pharmaceuticals will reach cashflow breakeven in 4 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Infinity Pharmaceuticals Growing?

On balance, we think it's mildly positive that Infinity Pharmaceuticals trimmed its cash burn by 18% over the last twelve months. But the revenue dip of 44% in the same period was a bit concerning. Taken together, we think these growth metrics are a little worrying. 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?

Since Infinity Pharmaceuticals revenue has been falling, the market will likely be considering how it can raise more cash if need be. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Infinity Pharmaceuticals' cash burn of US$36m is about 13% of its US$266m market capitalisation. 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?

On this analysis of Infinity Pharmaceuticals' cash burn, we think its cash burn relative to its market cap was reassuring, while its falling revenue has us a bit worried. One real positive is that analysts are forecasting that the company will reach breakeven. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Infinity Pharmaceuticals (3 make us uncomfortable!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, 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. 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.
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