Stock Analysis

Will Senti Biosciences (NASDAQ:SNTI) Spend Its Cash Wisely?

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NasdaqGM:SNTI
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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. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Senti Biosciences (NASDAQ:SNTI) shareholders is whether they should be concerned by its rate of cash burn. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

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How Long Is Senti Biosciences' 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 Senti Biosciences last reported its balance sheet in June 2022, it had zero debt and cash worth US$141m. Importantly, its cash burn was US$60m over the trailing twelve months. That means it had a cash runway of about 2.3 years as of June 2022. Arguably, that's a prudent and sensible length of runway to have. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
NasdaqGM:SNTI Debt to Equity History September 27th 2022

How Well Is Senti Biosciences Growing?

Notably, Senti Biosciences actually ramped up its cash burn very hard and fast in the last year, by 102%, signifying heavy investment in the business. It seems likely that the vociferous operating revenue growth of 121% during that time may well have given management confidence to ramp investment. 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.

Can Senti Biosciences Raise More Cash Easily?

While Senti Biosciences seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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).

Since it has a market capitalisation of US$53m, Senti Biosciences' US$60m in cash burn equates to about 112% of its market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

So, Should We Worry About Senti Biosciences' Cash Burn?

On this analysis of Senti Biosciences' cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Senti Biosciences (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Of course Senti Biosciences 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.

Valuation is complex, but we're helping make it simple.

Find out whether Senti Biosciences is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NasdaqGM:SNTI

Senti Biosciences

Senti Biosciences, Inc. operates as a preclinical biotechnology company that develops next-generation cell and gene therapies engineered with its gene circuit platform technologies for various diseases.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation0
Future Growth0
Past Performance0
Financial Health6
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet with weak fundamentals.