We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you’d have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
NASDAQ:SESN) shareholders be worried about its cash burn? In this report, we will consider the company’s annual negative free cash flow, henceforth referring to it as the ‘cash burn’. Let’s start with an examination of the business’ cash, relative to its cash burn.” data-reactid=”29″>So should Sesen Bio (NASDAQ:SESN) shareholders be worried about its cash burn? In this report, we will consider the company’s annual negative free cash flow, henceforth referring to it as the ‘cash burn’. Let’s start with an examination of the business’ cash, relative to its cash burn.
Check out our latest analysis for Sesen Bio ” data-reactid=”30″> Check out our latest analysis for Sesen Bio
When Might Sesen Bio Run Out Of Money?
A company’s cash runway is calculated by dividing its cash hoard by its cash burn. Sesen Bio has such a small amount of debt that we’ll set it aside, and focus on the US$38m in cash it held at June 2020. Looking at the last year, the company burnt through US$39m. Therefore, from June 2020 it had roughly 12 months of cash runway. That’s quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.
How Is Sesen Bio’s Cash Burn Changing Over Time?
our analyst forecasts for the company.” data-reactid=”50″>Sesen Bio didn’t record any revenue over the last year, indicating that it’s an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. With the cash burn rate up 32% in the last year, it seems that the company is ratcheting up investment in the business over time. However, the company’s true cash runway will therefore be shorter than suggested above, if spending continues to increase. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Hard Would It Be For Sesen Bio To Raise More Cash For Growth?
Given its cash burn trajectory, Sesen Bio shareholders should already be thinking about how easy it might be for it to raise further cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Since it has a market capitalisation of US$122m, Sesen Bio’s US$39m in cash burn equates to about 32% of its market value. That’s not insignificant, and if the company had to sell enough shares to fund another year’s growth at the current share price, you’d likely witness fairly costly dilution.
So, Should We Worry About Sesen Bio’s Cash Burn?
4 warning signs for Sesen Bio (of which 1 shouldn’t be ignored!) you should know about.” data-reactid=”55″>We must admit that we don’t think Sesen Bio is in a very strong position, when it comes to its cash burn. While its cash runway wasn’t too bad, its cash burn relative to its market cap does leave us rather nervous. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Sesen Bio (of which 1 shouldn’t be ignored!) you should know about.
collection of companies boasting high return on equity, or this list of stocks that insiders are buying.” data-reactid=”60″>Of course Sesen Bio may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”61″>This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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