Yahoo Finance Companies Like Context Therapeutics (NASDAQ:CNTX) Could Be Quite Risky
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, Context Therapeutics (NASDAQ:CNTX) shareholders have done very well over the last year, with the share price soaring by 117%. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
Given its strong share price performance, we think it's worthwhile for Context Therapeutics shareholders to consider whether its cash burn is concerning. 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 Context Therapeutics
Does Context Therapeutics Have A Long Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In December 2023, Context Therapeutics had US$14m in cash, and was debt-free. In the last year, its cash burn was US$21m. So it had a cash runway of approximately 8 months from December 2023. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.
How Is Context Therapeutics' Cash Burn Changing Over Time?
Context Therapeutics 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 49% 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. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Hard Would It Be For Context Therapeutics To Raise More Cash For Growth?
Since its cash burn is moving in the wrong direction, Context Therapeutics shareholders may wish to think ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed 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 capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
In the last year, Context Therapeutics burned through US$21m, which is just about equal to its US$20m market cap. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.
Is Context Therapeutics' Cash Burn A Worry?
As you can probably tell by now, we're rather concerned about Context Therapeutics' cash burn. In particular, we think its cash burn relative to its market cap suggests it isn't in a good position to keep funding growth. While not as bad as its cash burn relative to its market cap, its increasing cash burn is also a concern, and considering everything mentioned above, we're struggling to find much to be optimistic about. Once we consider the metrics mentioned in this article together, we're left with very little confidence in the company's ability to manage its cash burn, and we think it will probably need more money. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Context Therapeutics (3 can't be ignored!) that you should be aware of before investing here.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
