Will Cellectar Biosciences (NASDAQ:CLRB) Spend Its Cash Wisely?
We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
Given this risk, we thought we'd take a look at whether Cellectar Biosciences (NASDAQ:CLRB) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
View our latest analysis for Cellectar Biosciences
When Might Cellectar Biosciences Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Cellectar Biosciences last reported its balance sheet in June 2022, it had zero debt and cash worth US$25m. In the last year, its cash burn was US$22m. So it had a cash runway of approximately 14 months from June 2022. Notably, analysts forecast that Cellectar Biosciences will break even (at a free cash flow level) in about 2 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.
How Is Cellectar Biosciences' Cash Burn Changing Over Time?
Cellectar Biosciences didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. Over the last year its cash burn actually increased by 15%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. 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 Cellectar Biosciences To Raise More Cash For Growth?
Given its cash burn trajectory, Cellectar Biosciences shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.
Cellectar Biosciences' cash burn of US$22m is about 65% of its US$34m market capitalisation. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.
So, Should We Worry About Cellectar Biosciences' Cash Burn?
On this analysis of Cellectar Biosciences' cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. One real positive is that analysts are forecasting that the company will reach breakeven. 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. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Cellectar Biosciences (of which 2 are a bit unpleasant!) you should know about.
Of course Cellectar 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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