- Oops!Something went wrong.Please try again later.
Just because a business does not make any money, does not mean that the stock will go down. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given this risk, we thought we'd take a look at whether CureVac (NASDAQ:CVAC) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
When Might CureVac Run Out Of Money?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When CureVac last reported its balance sheet in December 2021, it had zero debt and cash worth €811m. Importantly, its cash burn was €861m over the trailing twelve months. Therefore, from December 2021 it had roughly 11 months of cash runway. Importantly, analysts think that CureVac will reach cashflow breakeven in 2 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. You can see how its cash balance has changed over time in the image below.
Is CureVac's Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because CureVac actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Pleasingly, the company produced stunning operating revenue growth of 111% over the last year. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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 CureVac To Raise More Cash For Growth?
There's no doubt CureVac's revenue growth is impressive but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Companies can raise capital through either debt or equity. 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.
CureVac has a market capitalisation of €3.2b and burnt through €861m last year, which is 27% of the company's market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.
So, Should We Worry About CureVac's Cash Burn?
Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought CureVac's revenue growth was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about CureVac's situation. An in-depth examination of risks revealed 1 warning sign for CureVac that readers should think about before committing capital to this stock.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.