Yahoo Finance Adaptimmune Therapeutics (NASDAQ:ADAP) Is In A Good Position To Deliver On Growth Plans
We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for Adaptimmune Therapeutics (NASDAQ:ADAP) shareholders is whether they should be concerned by its rate of 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
See our latest analysis for Adaptimmune Therapeutics
How Long Is Adaptimmune Therapeutics' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2021, Adaptimmune Therapeutics had US$318m in cash, and was debt-free. Looking at the last year, the company burnt through US$121m. So it had a cash runway of about 2.6 years from March 2021. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.
How Well Is Adaptimmune Therapeutics Growing?
Adaptimmune Therapeutics boosted investment sharply in the last year, with cash burn ramping by 96%. While that certainly gives us pause for thought, we take a lot of comfort in the strong annual revenue growth of 93%. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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.
How Hard Would It Be For Adaptimmune Therapeutics To Raise More Cash For Growth?
While Adaptimmune Therapeutics seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).
Adaptimmune Therapeutics has a market capitalisation of US$734m and burnt through US$121m last year, which is 16% 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 Adaptimmune Therapeutics' Cash Burn Situation?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Adaptimmune Therapeutics' revenue growth was relatively promising. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 4 warning signs for Adaptimmune Therapeutics you should be aware of, and 1 of them is potentially serious.
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)
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.
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