We're Not Worried About Y-mAbs Therapeutics' (NASDAQ:YMAB) Cash Burn

There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Y-mAbs Therapeutics (NASDAQ:YMAB) has seen its share price rise 370% over the last year, delighting many shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

In light of its strong share price run, we think now is a good time to investigate how risky Y-mAbs Therapeutics' cash burn is. 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.

See our latest analysis for Y-mAbs Therapeutics

Does Y-mAbs Therapeutics Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Y-mAbs Therapeutics last reported its December 2023 balance sheet in February 2024, it had zero debt and cash worth US$79m. Importantly, its cash burn was US$27m over the trailing twelve months. So it had a cash runway of about 2.9 years from December 2023. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Well Is Y-mAbs Therapeutics Growing?

Y-mAbs Therapeutics managed to reduce its cash burn by 64% over the last twelve months, which suggests it's on the right flight path. And revenue is up 30% in that same period; also a good sign. It seems to be growing nicely. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Y-mAbs Therapeutics Raise More Cash Easily?

We are certainly impressed with the progress Y-mAbs Therapeutics has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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).

Y-mAbs Therapeutics has a market capitalisation of US$704m and burnt through US$27m last year, which is 3.9% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About Y-mAbs Therapeutics' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way Y-mAbs Therapeutics 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. And even its revenue growth was very encouraging. 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, Y-mAbs Therapeutics has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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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.