Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. For exemple, MaxCyte (LON: MXCT) has seen its share price rise 112% in the past year, delighting many shareholders. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.
In light of the sharp rise in its stock price, we believe the time has come to consider how risky MaxCyte’s cash consumption is. In this article, we define cash consumption as its annual (negative) free cash flow, that is, the amount that a company spends each year to finance its growth. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash flow track.
Check out our latest analysis for MaxCyte
How long is the MaxCyte cash trail?
A company’s cash flow track is calculated by dividing its cash reserve by its cash consumption. When MaxCyte last released its balance sheet in September 2021, it had no debt and $ 256 million in cash. Looking at last year, the company burned US $ 15 million. It therefore had a very long cash flow trail of several years starting in September 2021. Even though this is only a measure of the company’s cash consumption, the idea of ââsuch a long cash trail warms our stomachs in a heartwarming way. You can see how her cash balance has changed over time in the image below.
How much is MaxCyte growing?
Some investors might find it troubling that MaxCyte is in fact increasing its cash consumption, which increased by 44% last year. On the bright side, revenue increased 33%, showing that the company is growing at the top of the list. Overall, we would say the business is improving over time. Obviously, however, the crucial factor is whether the company will expand its business in the future. You might want to take a look at the expected growth of the business over the next few years.
Would it be difficult for MaxCyte to raise more cash for growth?
There is no doubt that MaxCyte appears to be in a good enough position to manage his cash consumption, but even if this is only hypothetical, it is still worth wondering how easily he could raise more money for finance growth. Businesses can raise capital through debt or equity. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. We can compare a company’s cash consumption to its market capitalization to get an idea of ââhow many new shares a company would need to issue to fund its one-year operations.
MaxCyte has a market cap of US $ 1.3 billion and spent US $ 15 million last year, or 1.2% of the market value of the company. So he could almost certainly borrow a little to finance another year’s growth, or he could easily raise cash by issuing a few shares.
Is MaxCyte’s Cash Burn a concern?
It may already be obvious to you that we are relatively comfortable with the way MaxCyte burns its money. In particular, we believe that its cash flow track stands out as proof that the company has good control over its spending. Although its growing consumption of cash has not been significant, the other factors mentioned in this article more than make up for the weakness of this measure. Looking at all of the metrics in this article, together, we’re not worried about its rate of cash consumption; the business appears to be well above its medium-term spending needs. Diving deeper, we spotted 5 warning signs for MaxCyte you must be aware of this, and one of them must not be ignored.
Sure MaxCyte may not be the best stock to buy. So you might want to see this free a set of companies offering a high return on equity, or that list of stocks that insiders buy.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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