- Oops!Something went wrong.Please try again later.
We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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 CASI Pharmaceuticals (NASDAQ:CASI) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
When Might CASI Pharmaceuticals Run Out Of Money?
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. When CASI Pharmaceuticals last reported its balance sheet in September 2020, it had zero debt and cash worth US$76m. Importantly, its cash burn was US$41m over the trailing twelve months. That means it had a cash runway of around 22 months as of September 2020. 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. You can see how its cash balance has changed over time in the image below.
How Well Is CASI Pharmaceuticals Growing?
CASI Pharmaceuticals reduced its cash burn by 3.0% during the last year, which points to some degree of discipline. But that's nothing compared to its mouth-watering operating revenue growth of 318%. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
Can CASI Pharmaceuticals Raise More Cash Easily?
While CASI Pharmaceuticals 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. 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 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).
CASI Pharmaceuticals has a market capitalisation of US$328m and burnt through US$41m last year, which is 12% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
How Risky Is CASI Pharmaceuticals' Cash Burn Situation?
The good news is that in our view CASI Pharmaceuticals' cash burn situation gives shareholders real reason for optimism. Not only was its cash runway quite good, but its revenue growth was a real positive. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for CASI Pharmaceuticals that potential shareholders should take into account before putting money into a stock.
Of course CASI Pharmaceuticals 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.
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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.