We Think Vor Biopharma (NASDAQ:VOR) 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, 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 while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
Given this risk, we thought we'd take a look at whether Vor Biopharma (NASDAQ:VOR) shareholders should 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
View our latest analysis for Vor Biopharma
How Long Is Vor Biopharma's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2022, Vor Biopharma had cash of US$230m and no debt. Importantly, its cash burn was US$94m over the trailing twelve months. That means it had a cash runway of about 2.5 years as of December 2022. Importantly, analysts think that Vor Biopharma will reach cashflow breakeven in 5 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. The image below shows how its cash balance has been changing over the last few years.
How Is Vor Biopharma's Cash Burn Changing Over Time?
Because Vor Biopharma isn't currently generating revenue, we consider it an early-stage 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 28%, 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. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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 Vor Biopharma To Raise More Cash For Growth?
Given its cash burn trajectory, Vor Biopharma shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.
Vor Biopharma's cash burn of US$94m is about 32% of its US$292m market capitalisation. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.
How Risky Is Vor Biopharma's Cash Burn Situation?
On this analysis of Vor Biopharma's 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. 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 Vor Biopharma's situation. On another note, Vor Biopharma has 5 warning signs (and 3 which make us uncomfortable) we think you should know about.
Of course Vor Biopharma 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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