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We Think Corbus Pharmaceuticals Holdings (NASDAQ:CRBP) Can Afford To Drive Business Growth

Simply Wall St

Just because a business does not make any money, does not mean that the stock will go down. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Corbus Pharmaceuticals Holdings (NASDAQ:CRBP) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business's cash, relative to its cash burn.

View our latest analysis for Corbus Pharmaceuticals Holdings

Does Corbus Pharmaceuticals Holdings 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. As at September 2019, Corbus Pharmaceuticals Holdings had cash of US$55m and no debt. In the last year, its cash burn was US$39m. So it had a cash runway of approximately 17 months from September 2019. Importantly, analysts think that Corbus Pharmaceuticals Holdings will reach cashflow breakeven in 4 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.

NasdaqGM:CRBP Historical Debt, November 12th 2019

How Well Is Corbus Pharmaceuticals Holdings Growing?

Some investors might find it troubling that Corbus Pharmaceuticals Holdings is actually increasing its cash burn, which is up 40% in the last year. On the other hand, the impressive revenue growth of 1126% signals that the increased expenditure may well be yielding results. It may well be that it has some excellent opportunities to invest in growth. 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. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Corbus Pharmaceuticals Holdings Raise Cash?

Corbus Pharmaceuticals Holdings seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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).

Corbus Pharmaceuticals Holdings's cash burn of US$39m is about 14% of its US$285m 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.

Is Corbus Pharmaceuticals Holdings's Cash Burn A Worry?

On this analysis of Corbus Pharmaceuticals Holdings's cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. When you don't have traditional metrics like earnings per share and free cash flow to value a company, many are extra motivated to consider qualitative factors such as whether insiders are buying or selling shares. Please Note: Corbus Pharmaceuticals Holdings insiders have been trading shares, according to our data. Click here to check whether insiders have been buying or selling.

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.