Stock Analysis

We Think Shattuck Labs (NASDAQ:STTK) Can Afford To Drive Business Growth

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NasdaqGS:STTK
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There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 Shattuck Labs (NASDAQ:STTK) 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Shattuck Labs

When Might Shattuck Labs Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2021, Shattuck Labs had US$305m in cash, and was debt-free. Looking at the last year, the company burnt through US$56m. So it had a cash runway of about 5.4 years from June 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
NasdaqGS:STTK Debt to Equity History August 24th 2021

How Well Is Shattuck Labs Growing?

Notably, Shattuck Labs actually ramped up its cash burn very hard and fast in the last year, by 134%, signifying heavy investment in the business. That's bad enough, but the operating revenue drop of 83% points to a period of uncertainty and, quite potentially, heightened risk for holders." Considering these two factors together makes us nervous about the direction the company seems to be heading. 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.

Can Shattuck Labs Raise More Cash Easily?

Even though it seems like Shattuck Labs is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Shattuck Labs has a market capitalisation of US$895m and burnt through US$56m last year, which is 6.3% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

Is Shattuck Labs' Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Shattuck Labs' 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 Shattuck Labs' situation. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Shattuck Labs (1 is significant!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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What are the risks and opportunities for Shattuck Labs?

Shattuck Labs, Inc., a clinical-stage biotechnology company, develops therapeutics for the treatment of cancer and autoimmune disease in the United States.

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Rewards

  • Revenue is forecast to grow 69.46% per year

Risks

  • Currently unprofitable and not forecast to become profitable over the next 3 years

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