Is vTv Therapeutics (NASDAQ:VTVT) In A Good Position To Invest In 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for vTv Therapeutics (NASDAQ:VTVT) 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'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
View our latest analysis for vTv Therapeutics
Does vTv Therapeutics Have A Long Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. vTv Therapeutics has such a small amount of debt that we'll set it aside, and focus on the US$12m in cash it held at December 2022. Looking at the last year, the company burnt through US$16m. So it had a cash runway of approximately 9 months from December 2022. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. Depicted below, you can see how its cash holdings have changed over time.
How Well Is vTv Therapeutics Growing?
On balance, we think it's mildly positive that vTv Therapeutics trimmed its cash burn by 17% over the last twelve months. But the revenue dip of 50% in the same period was a bit concerning. Taken together, we think these growth metrics are a little worrying. 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 Hard Would It Be For vTv Therapeutics To Raise More Cash For Growth?
Given vTv Therapeutics' revenue is receding, there's a considerable chance it will eventually need to raise more money to spend on driving 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.
Since it has a market capitalisation of US$83m, vTv Therapeutics' US$16m in cash burn equates to about 19% of its market value. 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.
So, Should We Worry About vTv Therapeutics' Cash Burn?
On this analysis of vTv Therapeutics' cash burn, we think its cash burn reduction was reassuring, while its falling revenue has us a bit worried. Summing up, we think the vTv Therapeutics' cash burn is a risk, based on the factors we mentioned in this article. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for vTv Therapeutics (2 shouldn't be ignored!) that you should be aware of before investing here.
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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