We Think IonQ (NYSE:IONQ) Can Afford To Drive Business Growth

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 should IonQ (NYSE:IONQ) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for IonQ

SWOT Analysis for IonQ

How Long Is IonQ's Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In December 2022, IonQ had US$356m in cash, and was debt-free. Looking at the last year, the company burnt through US$57m. Therefore, from December 2022 it had 6.2 years of cash runway. Notably, however, analysts think that IonQ will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is IonQ Growing?

IonQ actually ramped up its cash burn by a whopping 57% in the last year, which shows it is boosting investment in the business. But shareholders are no doubt taking some confidence from the rockstar revenue growth of 430% during that same year. 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.

How Hard Would It Be For IonQ To Raise More Cash For Growth?

There's no doubt IonQ 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. Companies can raise capital through either debt or equity. 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.

IonQ's cash burn of US$57m is about 4.5% of its US$1.3b market capitalisation. 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 IonQ's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way IonQ is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for IonQ that investors should know when investing in the stock.

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

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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.