Stock Analysis

We're Interested To See How Vaxart (NASDAQ:VXRT) Uses Its Cash Hoard To Grow

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NasdaqCM:VXRT
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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. By way of example, Vaxart (NASDAQ:VXRT) has seen its share price rise 731% over the last year, delighting many shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So notwithstanding the buoyant share price, we think it's well worth asking whether Vaxart's cash burn is too risky. 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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Does Vaxart Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2020, Vaxart had US$133m in cash, and was debt-free. Looking at the last year, the company burnt through US$17m. That means it had a cash runway of about 7.8 years as of September 2020. Notably, however, analysts think that Vaxart will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
NasdaqCM:VXRT Debt to Equity History February 10th 2021

How Well Is Vaxart Growing?

Some investors might find it troubling that Vaxart is actually increasing its cash burn, which is up 6.9% in the last year. To be fair, given that fact it's hardly inspiring to see that the operating revenue was flat year on year. Considering both these factors, we're not particularly excited by its growth profile. 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 Vaxart Raise More Cash Easily?

Vaxart seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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. 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).

Vaxart has a market capitalisation of US$983m and burnt through US$17m last year, which is 1.7% of the company's market value. 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.

Is Vaxart's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Vaxart is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. One real positive is that analysts are forecasting that the company will reach breakeven. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. On another note, Vaxart has 3 warning signs (and 1 which is concerning) we think you should know about.

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What are the risks and opportunities for Vaxart?

Vaxart, Inc., a clinical-stage biotechnology company, engages in the discovery and development of oral recombinant protein vaccines based on its proprietary oral vaccine platform.

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Rewards

  • Revenue is forecast to grow 61.41% per year

Risks

  • Has less than 1 year of cash runway

  • Makes less than USD$1m in revenue ($159K)

  • Shareholders have been diluted in the past year

  • Volatile share price over the past 3 months

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

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