Is BeiGene (NASDAQ:ONC) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, BeiGene, Ltd. (NASDAQ:ONC) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for BeiGene

What Is BeiGene's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 BeiGene had CN¥7.16b of debt, an increase on CN¥3.87b, over one year. But on the other hand it also has CN¥19.0b in cash, leading to a CN¥11.9b net cash position.

How Strong Is BeiGene's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BeiGene had liabilities of CN¥14.2b due within 12 months and liabilities of CN¥2.53b due beyond that. On the other hand, it had cash of CN¥19.0b and CN¥4.24b worth of receivables due within a year. So it actually has CN¥6.60b more liquid assets than total liabilities.

This surplus suggests that BeiGene has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, BeiGene boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine BeiGene's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year BeiGene wasn't profitable at an EBIT level, but managed to grow its revenue by 50%, to CN¥24b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is BeiGene?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year BeiGene had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CN¥8.6b of cash and made a loss of CN¥6.0b. But at least it has CN¥11.9b on the balance sheet to spend on growth, near-term. BeiGene's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. For riskier companies like BeiGene I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.