U.S. markets close in 3 hours 13 minutes
  • S&P 500

    3,953.39
    +19.47 (+0.49%)
     
  • Dow 30

    33,711.66
    +113.74 (+0.34%)
     
  • Nasdaq

    11,049.25
    +90.69 (+0.83%)
     
  • Russell 2000

    1,817.95
    +11.05 (+0.61%)
     
  • Crude Oil

    72.38
    +0.37 (+0.51%)
     
  • Gold

    1,801.20
    +3.20 (+0.18%)
     
  • Silver

    23.27
    +0.35 (+1.54%)
     
  • EUR/USD

    1.0549
    +0.0034 (+0.33%)
     
  • 10-Yr Bond

    3.4730
    +0.0650 (+1.91%)
     
  • GBP/USD

    1.2224
    +0.0019 (+0.16%)
     
  • USD/JPY

    136.4770
    -0.0470 (-0.03%)
     
  • BTC-USD

    16,942.90
    +121.91 (+0.72%)
     
  • CMC Crypto 200

    398.55
    +3.86 (+0.98%)
     
  • FTSE 100

    7,472.17
    -17.02 (-0.23%)
     
  • Nikkei 225

    27,574.43
    -111.97 (-0.40%)
     

We're Hopeful That Vaxcyte (NASDAQ:PCVX) Will Use Its Cash Wisely

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Vaxcyte (NASDAQ:PCVX) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Vaxcyte

When Might Vaxcyte 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. As at June 2022, Vaxcyte had cash of US$354m and no debt. Importantly, its cash burn was US$153m over the trailing twelve months. That means it had a cash runway of about 2.3 years as of June 2022. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
debt-equity-history-analysis

How Is Vaxcyte's Cash Burn Changing Over Time?

Vaxcyte didn't record any revenue over the last year, indicating that it's an early stage company still developing its 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. The skyrocketing cash burn up 119% year on year certainly tests our nerves. That sort of spending growth rate can't continue for very long before it causes balance sheet weakness, generally speaking. 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.

Can Vaxcyte Raise More Cash Easily?

Given its cash burn trajectory, Vaxcyte shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Since it has a market capitalisation of US$1.6b, Vaxcyte's US$153m in cash burn equates to about 9.8% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About Vaxcyte's Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Vaxcyte's cash runway was relatively promising. 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 Vaxcyte's situation. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Vaxcyte (2 can't be ignored!) that you should be aware of before investing here.

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)

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here