While it’s true that owning shares of unprofitable businesses can be lucrative, as seen with Corvus Pharmaceuticals (NASDAQ:CRVS) shareholders who have witnessed their share price soar by 168% in the last year. However, investing in unprofitable companies comes with inherent risks, particularly if they burn through their cash reserves and become distressed.
In this article, we’ll delve into Corvus Pharmaceuticals’ cash burn situation to determine whether it’s a cause for concern. We’ll define cash burn as its annual (negative) free cash flow, which represents the amount of money a company spends each year to fund its growth. To assess the severity of the issue, we’ll compare its cash burn with its cash reserves and calculate its cash runway.
View Our Latest Analysis for Corvus Pharmaceuticals
When Might Corvus Pharmaceuticals Run Out Of Money?
A company’s cash runway is calculated by dividing its cash hoard by its cash burn. As of September 2024, Corvus Pharmaceuticals had $42 million in cash and no debt. Its cash burn over the trailing twelve months was $22 million. This translates to approximately 23 months of cash runway.
However, analysts predict that Corvus Pharmaceuticals will reach cash flow breakeven before then. In this scenario, it’s unlikely that the company will exhaust its cash reserves.
How Is Corvus Pharmaceuticals’ Cash Burn Changing Over Time?
As a development-stage company, Corvus Pharmaceuticals didn’t generate any revenue over the last year. Consequently, we can’t rely on sales data to understand growth trends. Instead, we’ll examine how the cash burn is changing over time.
Fortunately, the company’s cash burn reduced by 16% over the last year, indicating that management is maintaining a steady rate of business development with a slight decrease in spending.
Can Corvus Pharmaceuticals Raise More Cash Easily?
While Corvus Pharmaceuticals has shown a solid reduction in its cash burn, it’s still essential to consider how easily it can raise additional capital. Issuing new shares or taking on debt are common methods for listed companies to secure more funds.
To determine the feasibility of raising more cash, we’ll compare the company’s cash burn with its market capitalization. This will give us an idea of how many new shares Corvus Pharmaceuticals would need to issue to fund one year’s operations.
Story Continues
Since its market capitalization is $375 million, Corvus Pharmaceuticals’ $22 million in cash burn equates to about 5.9% of its market value. This suggests that the company could easily raise more funds with minimal dilution or even borrow some money.
How Risky Is Corvus Pharmaceuticals’ Cash Burn Situation?
Based on our analysis, we’re not too concerned about Corvus Pharmaceuticals’ cash burn situation. Its low cash burn relative to its market cap indicates a healthy financial position. The company’s weak point lies in its reduced cash burn rate, but even that isn’t alarming.
Moreover, analysts forecast that Corvus Pharmaceuticals will reach breakeven soon, which further mitigates the risk of running out of money.
Taking a Deeper Dive
After considering various factors, we’ve identified 4 warning signs for Corvus Pharmaceuticals that you should be aware of. However, these issues can be addressed with proper attention and planning.
Further Reading
If you’re interested in exploring more companies with significant insider holdings or growth stocks (according to analyst forecasts), please take a look at our lists below:
- List of Companies with Significant Insider Holdings
- Growth Stocks (According to Analyst Forecasts)
We welcome your feedback on this article. If you have any concerns or suggestions, feel free to reach out to us directly.
About This Article
This article by Simply Wall St is general in nature and provides commentary based on historical data and analyst forecasts only using an unbiased methodology. Our articles are not intended to be financial advice and do not constitute a recommendation to buy or sell any stock.
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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