Is CytomX Therapeutics (NASDAQ:CTMX) In A Good Position To Deliver On Growth Plans?
We can readily understand why investors are attracted to unprofitable companies. 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, the natural question for CytomX Therapeutics (NASDAQ:CTMX) shareholders is whether they should be concerned by its rate of 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. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for CytomX Therapeutics
Does CytomX Therapeutics Have A Long Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at March 2022, CytomX Therapeutics had cash of US$263m and no debt. Looking at the last year, the company burnt through US$132m. That means it had a cash runway of about 2.0 years as of March 2022. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. However, if we extrapolate the company's recent cash burn trend, then it would have a longer cash run way. Depicted below, you can see how its cash holdings have changed over time.
Is CytomX Therapeutics' Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because CytomX Therapeutics actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Although it's hardly brilliant growth, it's good to see the company grew revenue by 6.0% in the last year. 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.
How Easily Can CytomX Therapeutics Raise Cash?
While CytomX Therapeutics is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel 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).
CytomX Therapeutics' cash burn of US$132m is about 144% of its US$92m market capitalisation. Given just how high that expenditure is, relative to the company's market value, we think there's an elevated risk of funding distress, and we would be very nervous about holding the stock.
Is CytomX Therapeutics' Cash Burn A Worry?
On this analysis of CytomX Therapeutics' cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. Summing up, we think the CytomX Therapeutics' cash burn is a risk, based on the factors we mentioned in this article. On another note, CytomX Therapeutics has 4 warning signs (and 1 which is a bit concerning) we think you should know about.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
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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.
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