Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com suffered losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.
So the natural question for Iovance Biotherapeutics (NASDAQ: IOVA) is whether they should be concerned about its rate of cash consumption. In this report, we will consider the company’s annual negative free cash flow, which we now call “cash burn”. The first step is to compare its cash consumption with its cash reserves, to give us its “cash flow track”.
When could Iovance Biotherapeutics run out of money?
You can calculate a company’s cash flow trail by dividing the amount of cash it has by the rate at which it spends that cash. As of December 2020, Iovance Biotherapeutics had US $ 629 million in cash and was debt free. Looking at last year, the company spent US $ 252 million. This means it had a cash flow trail of around 2.5 years as of December 2020. Importantly, analysts believe that Iovance Biotherapeutics will hit cash flow in 3 years. So there is a very good chance that it will not need more money, considering that the burn rate will decrease during this period. Pictured below, you can see how his cash holdings have changed over time.
How does Iovance Biotherapeutics’ silver consumption change over time?
As Iovance Biotherapeutics does not currently generate any revenue, we consider it to be a start-up company. So while we can’t look at sales to understand growth, we can look at changes in cash consumption to understand changes in expenses over time. In the last twelve months, its cash consumption has actually increased by 52%. Often times, increased cash consumption just means that a business is speeding up its business development, but it should always be kept in mind that this leads to a reduction in the cash flow trail. If the past is always worth studying, it is the future that matters most. Then you might want to take a look at how much the company is expected to grow over the next few years.
Can Iovance Biotherapeutics Easily Raise More Money?
Given its cash-consuming trajectory, Iovance Biotherapeutics shareholders may want to consider how easily it could raise more cash, despite its strong cash trail. In general, a listed company can raise new liquidity by issuing shares or going into debt. Usually, a company will sell new stocks on its own to raise funds and stimulate growth. We can compare a company’s cash consumption to its market capitalization to get an idea of how many new shares a company would need to issue to fund its one-year operations.
Iovance Biotherapeutics has a market capitalization of US $ 5.1 billion and spent US $ 252 million last year, which is 4.9% of the market value of the company. Given that this is a rather small percentage, it would probably be very easy for the company to finance the growth of another year by issuing new shares to investors, or even taking out a loan.
So, should we be worried about the loss of money from Iovance Biotherapeutics?
It may already be obvious to you that we are relatively comfortable with the way Iovance Biotherapeutics burns its money. For example, we think its consumption of cash relative to its market capitalization suggests that the company is on the right track. Although its growing consumption of cash has not been significant, the other factors mentioned in this article more than make up for the weakness of this measure. A real bright spot is that analysts expect the company to break even. Looking at all of the metrics in this article, together, we’re not worried about its rate of cash consumption; the business appears to be well above its medium-term spending needs. It is important for readers to be aware of the risks that can affect business operations, and we have selected 3 warning signs for Iovance Biotherapeutics that investors need to know when investing in stocks.
Of course, you might find a fantastic investment looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analysts’ forecasts)
If you decide to trade Iovance Biotherapeutics, use the cheapest platform * which is ranked # 1 overall by Barron’s, Interactive brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.