We Think CRISPR Therapeutics (NASDAQ:CRSP) Can Afford To Drive Business Growth

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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for CRISPR Therapeutics (NASDAQ:CRSP) shareholders is whether they should be concerned by its rate of cash burn. 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 CRISPR Therapeutics

How Long Is CRISPR Therapeutics’ Cash Runway?

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. In June 2023, CRISPR Therapeutics had US$1.8b in cash, and was debt-free. In the last year, its cash burn was US$363m. Therefore, from June 2023 it had 4.9 years of cash runway. Notably, however, analysts think that CRISPR Therapeutics will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis

debt-equity-history-analysis

How Well Is CRISPR Therapeutics Growing?

It was fairly positive to see that CRISPR Therapeutics reduced its cash burn by 30% during the last year. But this achievement is overshadowed by the brilliant operating revenue growth of 1,048%. We think it is growing rather well, upon reflection. 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 Easily Can CRISPR Therapeutics Raise Cash?

There’s no doubt CRISPR Therapeutics seems to be in a fairly good position, when it comes to managing its cash burn, but even if it’s only hypothetical, it’s always worth asking how easily it could raise more money to fund 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. By comparing a company’s annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of US$3.7b, CRISPR Therapeutics’ US$363m in cash burn equates to about 9.7% of its market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year’s growth by issuing some new shares to investors, or even by taking out a loan.

Is CRISPR Therapeutics’ Cash Burn A Worry?

It may already be apparent to you that we’re relatively comfortable with the way CRISPR Therapeutics is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. And even though its cash burn reduction wasn’t quite as impressive, it was still a positive. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Looking at all the measures in this article, together, we’re not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Taking an in-depth view of risks, we’ve identified 1 warning sign for CRISPR Therapeutics that you should be aware of before investing.

Of course CRISPR Therapeutics 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.

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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.

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