There is no doubt that you can make money by owning shares of unprofitable companies. For example, biotechnology companies and mining exploration companies often lose money for years before achieving success with a new treatment or mineral discovery. But while history celebrates the rare successes, the failures are often forgotten. Does anyone remember Pets.com?
you should Agios Pharmaceuticals (NASDAQ:AGIO) shareholders worried about cash burn? In this article, we define cash burn as the amount of cash a company spends each year to fund growth (also known as negative free cash flow). Define. Let's start by examining the company's cash compared to its cash burn.
Check out our latest analysis for Agios Pharmaceuticals.
Does Agios Pharmaceuticals have long financing options?
A company's cash runway can be calculated by dividing the amount of cash it holds by the rate at which it spends that cash. As of December 2023, Agios Pharmaceuticals had cash of US$777m and no debt. Importantly, its cash burn in the trailing twelve months was US$315m. In other words, there was a funding period of approximately two and a half years starting in December 2023. Specifically, analysts expect Agios Pharmaceuticals to reach breakeven (at a free cash flow level) within about four years. So unless the company reduces its cash burn quickly, there's a good chance it will look to raise even more cash. You can see how its cash balance has changed over time in the image below.
Is Agios Pharmaceuticals growing steadily?
Agios Pharmaceuticals maintained its cash burn at a fairly stable level over the last year.what was it do not have Operating revenue was flat, increasing 88%. It seems to be growing steadily. The past is always worth studying, but it is the future that matters most. For this reason, it makes a lot of sense to see what analysts are predicting for the company.
How easily can Agios Pharmaceuticals raise funds?
We've certainly been impressed with Agios Pharmaceuticals' progress over the last year, but consider just how much it could cost if it wanted to raise more cash to fund faster growth. It's also worth it. Companies can raise capital through debt or equity. One of the main advantages of publicly traded companies is that they can sell stock to investors to raise cash and fund growth. You can compare a company's cash burn to its market capitalization to find out how many new shares a company needs to issue to finance its operations for one year.
Agios Pharmaceuticals' cash burn of $315 million is equivalent to about 19% of its market capitalization of $1.6 billion. Given this situation, it wouldn't be too difficult for the company to raise more cash for growth, but it would likely dilute shareholders somewhat.
Are you worried about Agios Pharmaceuticals' cash burn?
This analysis of Agios Pharmaceuticals' cash burn makes us think its earnings growth is reassuring, although we're a bit worried about its increasing cash burn. One really positive thing is that analysts expect the company to break even. Based on the factors mentioned in this article, we think the company's cash burn situation deserves some attention from shareholders, but we don't think it's anything to worry about. Readers should fully understand business risks before investing in stocks. 2 warning signs for Agios Pharmaceuticals That's something potential shareholders should consider before committing to a stock.
If you want to check out another company with better fundamentals, don't miss this free A list of interesting companies with a high return on equity, low debt, or a list of growing stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
