We Think Wave Life Sciences (NASDAQ:WVE) Can Easily Afford To Drive Business Growth
There's no doubt that money can be made by owning shares of unprofitable businesses. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So should Wave Life Sciences (NASDAQ:WVE) shareholders 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.
Check out our latest analysis for Wave Life Sciences
How Long Is Wave Life Sciences' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2023, Wave Life Sciences had cash of US$200m and no debt. Importantly, its cash burn was US$21m over the trailing twelve months. So it had a cash runway of about 9.8 years from December 2023. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Wave Life Sciences Growing?
Happily, Wave Life Sciences is travelling in the right direction when it comes to its cash burn, which is down 84% over the last year. But it was even more encouraging to see that operating revenue growth was as flash as a rat with a gold tooth, up 3,005% in that time. Overall, we'd say its growth is rather impressive. 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 Wave Life Sciences Raise Cash?
We are certainly impressed with the progress Wave Life Sciences has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund 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 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.
Wave Life Sciences' cash burn of US$21m is about 2.5% of its US$833m market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
So, Should We Worry About Wave Life Sciences' Cash Burn?
As you can probably tell by now, we're not too worried about Wave Life Sciences' cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. But it's fair to say that its cash burn relative to its market cap was also very reassuring. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. On another note, Wave Life Sciences has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.
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.
