Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. For example, although Amazon.com posted losses for many years after it listed, if you had bought and held the stock since 1999, you would have made a fortune. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.
So should moneyx (EBR:ARGX) Are shareholders worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable business spends money to finance its growth; its negative free cash flow. The first step is to compare its cash consumption with its cash reserves, to give us its “cash trail”.
See our latest analysis for argentx
Does Argenx have a long cash trail?
A cash trail is defined as the length of time it would take a business to run out of cash if it continued to spend at its current rate of cash burn. As of December 2021, argenx had cash of US$2.3 billion and no debt. Last year, its cash burn was $728 million. It therefore had a cash trail of around 3.2 years from December 2021. Importantly, analysts believe that argentx will reach cash breakeven in 3 years. This means he doesn’t have a lot of wiggle room, but he shouldn’t really need more cash, given that cash consumption should continuously decrease. The image below shows how his cash balance has changed over the past few years.
What is the growth of argentx?
argenx has boosted its investments significantly over the past year, with cash consumption up 70%. Given that operating revenues have increased by 1,016% over the past year, there is a good chance that the investment will pay off. Considering the above factors, the company does not fare badly when it comes to evaluating its evolution 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 company’s expected growth over the next few years.
How difficult would it be for argenx to raise more cash for growth?
There’s no doubt that argentx seems to be in a pretty good position to manage its cash burn, but even if it’s only hypothetical, it’s still worth considering how easily it could raise more cash. to finance growth. Issuing new shares or going into debt are the most common ways for a listed company to raise more funds for its business. Typically, a company will sell new stock on its own to raise cash and drive growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company running for another year (at the same burn rate).
silverx’s cash burn of US$728 million represents approximately 5.0% of its market capitalization of US$14 billion. This is a small proportion, so we think the company would be able to raise more cash to fund growth, with a bit of dilution, or even just borrow money.
So, should we be worried about silverx cash consumption?
As you can probably tell by now, we’re not too worried about silverx’s cash burn. In particular, we believe that its revenue growth is proof that the company has its expenses under control. While its growing cash burn was not significant, the other factors mentioned in this article more than offset the weakness in this metric. Shareholders can rejoice that analysts predict it will break even. After considering the various metrics mentioned in this report, we are quite comfortable with how the company is spending its money, as it appears to be on track to meet its medium-term needs. A thorough review of the risks revealed 2 warning signs for the silver readers should consider before committing capital to this title.
Sure argentx may not be the best stock to buy. So you might want to see this free collection of companies offering a high return on equity, or this list of stocks that insiders buy.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.