Here's Why We're Watching Adaptive Biotechnologies' (NASDAQ:ADPT) Cash Burn Situation
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, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for Adaptive Biotechnologies (NASDAQ:ADPT) shareholders is whether they should be concerned by its rate of cash burn. 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for Adaptive Biotechnologies
Does Adaptive Biotechnologies Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2022, Adaptive Biotechnologies had cash of US$364m and no debt. Importantly, its cash burn was US$248m over the trailing twelve months. That means it had a cash runway of around 18 months as of March 2022. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. We should note, however, that if we extrapolate recent trends in its cash burn, then its cash runway would get a lot longer. You can see how its cash balance has changed over time in the image below.
How Well Is Adaptive Biotechnologies Growing?
Some investors might find it troubling that Adaptive Biotechnologies is actually increasing its cash burn, which is up 19% in the last year. The silver lining is that revenue was up 33%, showing the business is growing at the top line. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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 Adaptive Biotechnologies Raise More Cash Easily?
While Adaptive Biotechnologies seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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.
Adaptive Biotechnologies' cash burn of US$248m is about 18% of its US$1.4b market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.
How Risky Is Adaptive Biotechnologies' Cash Burn Situation?
On this analysis of Adaptive Biotechnologies' cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Adaptive Biotechnologies' situation. 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 Adaptive Biotechnologies 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.
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