Stock Analysis

We're Hopeful That Infinity Pharmaceuticals (NASDAQ:INFI) Will Use Its Cash Wisely

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NasdaqGS:INFI
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Just because a business does not make any money, does not mean that the stock will go down. 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 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'.

See 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. When Infinity Pharmaceuticals last reported its balance sheet in September 2021, it had zero debt and cash worth US$90m. In the last year, its cash burn was US$39m. So it had a cash runway of about 2.3 years from September 2021. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
NasdaqGS:INFI Debt to Equity History December 29th 2021

How Well Is Infinity Pharmaceuticals Growing?

Some investors might find it troubling that Infinity Pharmaceuticals is actually increasing its cash burn, which is up 6.8% in the last year. The revenue growth of 16% gives a ray of hope, at the very least. 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.

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. 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 comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Infinity Pharmaceuticals has a market capitalisation of US$214m and burnt through US$39m last year, which is 18% of the company's 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.

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

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Infinity Pharmaceuticals' cash runway was relatively promising. 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 Infinity Pharmaceuticals' situation. Taking a deeper dive, we've spotted 5 warning signs for Infinity Pharmaceuticals you should be aware of, and 1 of them makes us a bit uncomfortable.

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.

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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