Even when a company is making losses, it is possible for shareholders to make a profit if they buy a good company at an appropriate price. For example, if you’ve owned the stock since 2005, Salesforce.com, a software-as-a-service business, has lost money for years while its recurring revenue has grown, but if you’ve owned the stock since 2005, it’s certainly a very It would have worked fine. But the harsh reality is that too many loss-making businesses run out of cash and go bankrupt.
Given this risk, we thought we’d consider whether GH Research (NASDAQ:GHRS) shareholders should be worried about its cash burn. In this article, cash burn refers to the annual rate at which an unprofitable company spends cash to fund growth. Free cash flow is negative. First, we compare its cash burn to its cash reserves to calculate its cash runway.
Check out our latest analysis for GH Research.
Does GH Research have a long funding period?
A company’s cash runway is calculated by dividing its cash holdings by its cash burn. As of June 2024, GH Research had cash of US$151m and no debt. Looking at last year, the company burned through US$38 million. So it had a cash runway of 4.0 years from June 2024. There is no doubt that it is a long runway where you can feel safe. You can see how its cash holdings have changed over time, as shown below.
NasdaqGM:GHRS Debt to Equity Transition October 11, 2024
How has GH Research’s cash burn changed over time?
We consider GH Research to be an early stage business as it is not currently generating revenue. Nevertheless, we can examine its cash burn trajectory as part of assessing its cash burn situation. The company’s cash burn actually increased by 27% in the last year. This suggests that management is ramping up investment for future growth, but not very quickly. However, if spending continues to rise, the company’s actual cash runway will be shorter than implied above. The past is always worth studying, but it is the future that matters most. So it might be worth taking a peek at how much the company is expected to grow over the next few years.
Could GH Research easily raise more cash?
GH Research has solid funding sources, but its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. . Companies can raise capital through debt or equity. Many companies end up issuing new shares to fund future growth. You can compare a company’s cash burn to its market capitalization to find out how many new shares a company needs to issue to finance its operations for one year.
GH Research’s cash burn of $38 million represents about 11% of its market capitalization of $342 million. As a result, we’d venture that the company could raise more cash for growth without too much trouble, even at the cost of some dilution.
So should we be worried about GH Research’s cash burn?
As you’ve probably noticed by now, we’re relatively happy with how GH Research is running out of money. In particular, we think the company’s ability to raise funds stands out as evidence that it is spending well. While increasing cash burn is certainly reason for pause, the other metrics discussed in this article form an overall positive picture. After considering the various metrics mentioned in this report, we’re fairly satisfied with the company’s use of cash, as it appears to be on track to meet its needs in the medium term. Without further ado, we conducted thorough research on the company and found 3 warning signs for GH Research (2 don’t sit well with us!) you should know about before investing here. has been identified.
Of course, you might find great investments if you look elsewhere. So take a peek at this free list of interesting companies and growth stocks (based on analyst forecasts).
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
