We're A Little Worried About CytomX Therapeutics' (NASDAQ:CTMX) Cash Burn Rate
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether CytomX Therapeutics (NASDAQ:CTMX) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for CytomX Therapeutics
Does CytomX 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. In September 2022, CytomX Therapeutics had US$194m in cash, and was debt-free. Importantly, its cash burn was US$142m over the trailing twelve months. That means it had a cash runway of around 16 months as of September 2022. Importantly, analysts think that CytomX Therapeutics will reach cashflow breakeven in 4 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.
How Well Is CytomX Therapeutics Growing?
At first glance it's a bit worrying to see that CytomX Therapeutics actually boosted its cash burn by 33%, year on year. At least the revenue was up 8.6% during the period, even if it wasn't up by much. Considering both these factors, we're not particularly excited by its growth profile. 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 CytomX Therapeutics To Raise More Cash For Growth?
Even though it seems like CytomX Therapeutics is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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).
CytomX Therapeutics has a market capitalisation of US$100m and burnt through US$142m last year, which is 143% of the company's market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.
Is CytomX Therapeutics' Cash Burn A Worry?
Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought CytomX Therapeutics' cash runway was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. After looking at that range of measures, we think shareholders should be extremely attentive to how the company is using its cash, as the cash burn makes us uncomfortable. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for CytomX Therapeutics that potential shareholders should take into account before putting money into a stock.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, 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.
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