We're Keeping An Eye On Shattuck Labs' (NASDAQ:STTK) Cash Burn Rate
There's no doubt that money can be made by owning shares of unprofitable businesses. Indeed, Shattuck Labs (NASDAQ:STTK) stock is up 169% in the last year, providing strong gains for shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So notwithstanding the buoyant share price, we think it's well worth asking whether Shattuck Labs' cash burn is too risky. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
Check out our latest analysis for Shattuck Labs
When Might Shattuck Labs Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2023, Shattuck Labs had cash of US$101m and no debt. Importantly, its cash burn was US$87m over the trailing twelve months. Therefore, from September 2023 it had roughly 14 months of cash runway. 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. The image below shows how its cash balance has been changing over the last few years.
How Well Is Shattuck Labs Growing?
On balance, we think it's mildly positive that Shattuck Labs trimmed its cash burn by 15% over the last twelve months. On the other hand, operating revenue was down 96% during the period, which is seriously uninspiring. Considering these two factors together makes us nervous about the direction the company seems to be heading. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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 Shattuck Labs To Raise More Cash For Growth?
Since Shattuck Labs revenue has been falling, the market will likely be considering how it can raise more cash if need be. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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).
Shattuck Labs has a market capitalisation of US$273m and burnt through US$87m last year, which is 32% of the company's market value. 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.
Is Shattuck Labs' Cash Burn A Worry?
Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Shattuck Labs' cash burn reduction was relatively promising. Summing up, we think the Shattuck Labs' cash burn is a risk, based on the factors we mentioned in this article. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Shattuck Labs (of which 3 are a bit concerning!) you should know about.
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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.
