Stock Analysis

Is Infinity Pharmaceuticals (NASDAQ:INFI) In A Good Position To Invest In Growth?

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NasdaqGS:INFI
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We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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 this risk, we thought we'd take a look at whether Infinity Pharmaceuticals (NASDAQ:INFI) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out the opportunities and risks within the US Biotechs industry.

How Long Is Infinity Pharmaceuticals' Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In June 2022, Infinity Pharmaceuticals had US$57m in cash, and was debt-free. In the last year, its cash burn was US$42m. Therefore, from June 2022 it had roughly 16 months of cash runway. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
NasdaqGS:INFI Debt to Equity History November 10th 2022

How Well Is Infinity Pharmaceuticals Growing?

At first glance it's a bit worrying to see that Infinity Pharmaceuticals actually boosted its cash burn by 5.9%, year on year. The revenue growth of 16% gives a ray of hope, at the very least. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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 Easily Can Infinity Pharmaceuticals Raise Cash?

Infinity Pharmaceuticals seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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$95m, Infinity Pharmaceuticals' US$42m in cash burn equates to about 44% of its market value. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.

So, Should We Worry About Infinity Pharmaceuticals' Cash Burn?

On this analysis of Infinity Pharmaceuticals' 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 Infinity Pharmaceuticals' cash burn is a risk, based on the factors we mentioned in this article. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Infinity Pharmaceuticals (2 can't be ignored!) 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)

What are the risks and opportunities for Infinity Pharmaceuticals?

Infinity Pharmaceuticals, Inc., a biopharmaceutical company, focuses on developing novel medicines for people with cancer.

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Rewards

  • Revenue is forecast to grow 44.12% per year

Risks

  • Negative shareholders equity

  • Does not have a meaningful market cap ($55M)

  • Does not have meaningful revenue ($3M)

  • Volatile share price over the past 3 months

  • Currently unprofitable and not forecast to become profitable over the next 3 years

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Market Cap

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Infinity Pharmaceuticals

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