Just because a company isn’t making money doesn’t mean its stock price will go down. For example, even though software-as-a-service company Salesforce.com lost money for years while generating recurring revenue, you’d have done very well if you’d owned the stock since 2005. Still, only a fool would ignore the risk that a money-losing company is burning through its cash too quickly.
Given this risk, we thought we would take a look at whether Ventyx Life Sciences (NASDAQ:VTYX) shareholders should be concerned about its cash burn. For the purpose of this article, we’ll define cash burn as the amount of cash the company spends each year to fund its growth (also known as negative free cash flow). Let’s start by examining the company’s cash, relative to its cash burn.
View our latest analysis for Ventyx Biosciences
Does Ventyx Biosciences have long cash flow?
A cash runway is defined as the time it would take for a company to burn through its cash if it continued to spend at its current rate of cash burn. As of March 2024, Ventyx Biosciences had US$303 million in cash and was debt-free. Looking at the last year, the company burned through US$184 million. Therefore, as of March 2024, it had approximately 20 months of cash runway. While that cash runway isn’t too concerning, prudent holders would look into the distance and consider what happens if the company runs out of cash. Here’s how its cash holdings have changed over time.
How does Ventyx Biosciences’ cash burn change over time?
Ventyx Biosciences has not recorded any revenue over the past year, indicating that it is an early stage company that is still developing its business. Nevertheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. In fact, its cash burn has increased by a very significant 57% over the past year. While this increase in spending is undoubtedly intended to fuel growth, the company’s cash runway will shrink very quickly if this trend continues. However, the crucial factor is clearly whether the company can grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How difficult would it be for Ventyx Biosciences to raise more money for growth?
Given the cash burn trajectory, Ventyx Biosciences shareholders may want to consider how easily the company can raise more money, despite its solid cash runway. Generally, a publicly traded company can raise new money by issuing shares or taking on debt. One of the key advantages of publicly traded 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 capitalization, we can gain insight into how much shareholders would be diluted if the company had to raise enough money to cover another year’s cash burn.
Ventyx Biosciences’ cash burn of US$184m is about 117% of its US$156m market cap. Given how high that expenditure is, relative to the company’s market cap, we think there is an increased risk of funding issues, and we’d be very nervous about holding the stock.
Should we be concerned about Ventyx Biosciences’ financial losses?
While the cash burn relative to market cap makes us a little nervous, we should mention that we thought Ventyx Biosciences’ cash runway was relatively promising. After looking at that range of measures, we think shareholders should be extremely vigilant about how the company is using its cash, because the cash burn makes us uncomfortable. Diving deeper, we found 4 Warning Signs for Ventyx Biosciences what you should be aware of, and 2 of them are a bit unpleasant.
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This article from Simply Wall St is general in nature. We comment solely on historical data and analyst forecasts, using an objective methodology. Our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any shares and does not take into account your objectives or financial situation. We aim to provide you with a long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in the shares mentioned.
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