Even when a business is losing money, it’s possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
NASDAQ:BLUE) shareholders is whether they should be concerned by its rate of cash burn. 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). The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.” data-reactid=”29″>So, the natural question for bluebird bio (NASDAQ:BLUE) shareholders is whether they should be concerned by its rate of cash burn. 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). The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.
Check out our latest analysis for bluebird bio ” data-reactid=”30″>Check out our latest analysis for bluebird bio
How Long Is bluebird bio’s 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. When bluebird bio last reported its balance sheet in June 2020, it had zero debt and cash worth US$1.5b. Looking at the last year, the company burnt through US$493m. So it had a cash runway of about 3.1 years from June 2020. Notably, analysts forecast that bluebird bio will break even (at a free cash flow level) in about 4 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. The image below shows how its cash balance has been changing over the last few years.
How Well Is bluebird bio Growing?
our analyst forecasts for the company.” data-reactid=”50″>On balance, we think it’s mildly positive that bluebird bio trimmed its cash burn by 14% over the last twelve months. But that’s nothing compared to its mouth-watering operating revenue growth of 324%. We think it is growing rather well, upon reflection. Clearly, however, the crucial factor is whether the company will 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.
Can bluebird bio Raise More Cash Easily?
While bluebird bio seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company’s cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year’s operations.
bluebird bio’s cash burn of US$493m is about 12% of its US$4.1b market capitalisation. As a result, we’d venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.
So, Should We Worry About bluebird bio’s Cash Burn?
3 warning signs for bluebird bio that investors should know when investing in the stock.” data-reactid=”55″>As you can probably tell by now, we’re not too worried about bluebird bio’s cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. On this analysis its cash burn reduction was its weakest feature, but we are not concerned about it. One real positive is that analysts are forecasting that the company will reach breakeven. Looking at all the measures in this article, together, we’re not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Its important for readers to be cognizant of the risks that can affect the company’s operations, and we’ve picked out 3 warning signs for bluebird bio that investors should know when investing in the stock.