Yahoo Finance We're Hopeful That MacroGenics (NASDAQ:MGNX) Will Use Its Cash Wisely
There's no doubt that money can be made by owning shares of unprofitable businesses. Indeed, MacroGenics (NASDAQ:MGNX) stock is up 134% in the last year, providing strong gains for shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
In light of its strong share price run, we think now is a good time to investigate how risky MacroGenics' cash burn is. 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for MacroGenics
How Long Is MacroGenics' Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at December 2023, MacroGenics had cash of US$230m and no debt. In the last year, its cash burn was US$80m. Therefore, from December 2023 it had 2.9 years of cash runway. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.
How Well Is MacroGenics Growing?
MacroGenics reduced its cash burn by 12% during the last year, which points to some degree of discipline. But it makes us pessimistic to see that operating revenue slid 61% in that time. Taken together, we think these growth metrics are a little worrying. 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.
How Easily Can MacroGenics Raise Cash?
Even though it seems like MacroGenics 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. 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 looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
Since it has a market capitalisation of US$1.0b, MacroGenics' US$80m in cash burn equates to about 8.0% 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.
Is MacroGenics' Cash Burn A Worry?
On this analysis of MacroGenics' cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. 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. Separately, we looked at different risks affecting the company and spotted 3 warning signs for MacroGenics (of which 1 shouldn't be ignored!) you should know about.
Of course MacroGenics 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.
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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.
