We Think SomaLogic (NASDAQ:SLGC) Can Easily Afford To Drive Business Growth

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for SomaLogic (NASDAQ:SLGC) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for SomaLogic

When Might SomaLogic Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2021, SomaLogic had cash of US$676m and no debt. Looking at the last year, the company burnt through US$27m. So it had a very long cash runway of many years from September 2021. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.

How Well Is SomaLogic Growing?

We reckon the fact that SomaLogic managed to shrink its cash burn by 24% over the last year is rather encouraging. Having said that, the revenue growth of 52% was considerably more inspiring. We think it is growing rather well, upon reflection. 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.

Can SomaLogic Raise More Cash Easily?

There's no doubt SomaLogic seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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.

SomaLogic's cash burn of US$27m is about 1.4% of its US$1.9b 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 SomaLogic's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way SomaLogic is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. 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. Taking an in-depth view of risks, we've identified 2 warning signs for SomaLogic that you should be aware of before investing.

Of course SomaLogic 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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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.