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, Intellia Therapeutics (NASDAQ:NTLA) has seen its share price rise 460% over the last year, delighting many 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 Intellia Therapeutics' 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. Let's start with an examination of the business' cash, relative to its cash burn.
When Might Intellia Therapeutics Run Out Of Money?
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 December 2020, Intellia Therapeutics had US$597m in cash, and was debt-free. Importantly, its cash burn was US$53m over the trailing twelve months. So it had a very long cash runway of many years from December 2020. Notably, however, analysts think that Intellia Therapeutics will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Intellia Therapeutics Growing?
We reckon the fact that Intellia Therapeutics managed to shrink its cash burn by 51% over the last year is rather encouraging. On top of that, operating revenue was up 35%, making for a heartening combination We think it is growing rather well, upon reflection. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Easily Can Intellia Therapeutics Raise Cash?
While Intellia Therapeutics seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Intellia Therapeutics' cash burn of US$53m is about 1.3% of its US$4.2b market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
How Risky Is Intellia Therapeutics' Cash Burn Situation?
As you can probably tell by now, we're not too worried about Intellia Therapeutics' cash burn. For example, we think its cash runway suggests that the company is on a good path. But it's fair to say that its cash burn reduction was also very reassuring. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. An in-depth examination of risks revealed 3 warning signs for Intellia Therapeutics that readers should think about before committing capital to this stock.
Of course Intellia Therapeutics 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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