Even in times when a Business is facing losses, shareholders can still turn a profit if they invest in a strong company at the right price. A great example of this is Corvus Pharmaceuticals (NASDAQ:CRVS), whose shareholders have seen a remarkable 226% increase in share price over the past year. However, it is important to acknowledge the risk involved when investing in a loss-making company that may quickly exhaust its cash reserves.
Given the impressive performance of Corvus Pharmaceuticals’ share price, it is worth exploring whether the company’s cash burn is a cause for concern. In this report, we will delve into the company’s annual negative free cash flow, which we will refer to as the ‘cash burn’. Let’s begin by examining the company’s cash position in relation to its cash burn.
Read our latest analysis on Corvus Pharmaceuticals
Is Corvus Pharmaceuticals Well-Equipped With Cash?
A company’s cash runway is the amount of time it would take for the company to run out of funds if it continues spending at the current rate of cash burn. As of September 2023, Corvus Pharmaceuticals held US$32m in cash and had no debt. With a cash burn of US$26m over the past twelve months, the company had a cash runway of approximately 15 months from September 2023. While this is a decent runway, it is important to note that unless the cash burn decreases significantly, the company may soon reach the end of its cash reserves. The chart below illustrates the changes in the company’s cash balance over the years.
How Is Corvus Pharmaceuticals Managing Its Cash Burn?
With no revenue recorded in the past year, Corvus Pharmaceuticals is still in the early stages of developing its business. While the lack of sales makes it difficult to assess growth, monitoring the trend of cash burn provides insight into the company’s expenditure patterns. The steady cash burn rate over the last twelve months indicates that the company is comfortable with its current spending. However, the key factor will be whether the company can expand its business in the future. It is advisable to review analyst forecasts for a clearer picture.
Can Corvus Pharmaceuticals Secure Additional Funding for Growth?
Despite Corvus Pharmaceuticals’ noticeable reduction in cash burn, it is essential to consider its ability to raise more capital, especially for accelerated growth. Publicly listed companies have the advantage of raising funds through share issuance or debt. With a market capitalisation of US$104m, Corvus Pharmaceuticals’ cash burn of US$26m represents around 25% of its market value. This significant cash burn indicates that if the company were to sell shares to cover another year of operations, shareholders would face substantial dilution.
Should Concerns Arise Over Corvus Pharmaceuticals’ Cash Burn?
While the cash burn relative to market cap raises some concerns, the promising cash runway of Corvus Pharmaceuticals is encouraging. Although the cash burn does not appear to be a major issue, shareholders should carefully consider potential costs associated with raising additional funds in the future. In addition, it is worth noting that Corvus Pharmaceuticals has 5 warning signs (and 2 potentially serious ones) that investors should be aware of.
Considering these factors, Corvus Pharmaceuticals may not be the optimal investment choice. For alternative options, explore this free selection of companies with high return on equity, or check out stocks with insider buying activity.
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This article by Simply Wall St offers general insights. We provide analysis based on historical data and analyst forecasts using an unbiased approach. Our articles are not intended as financial advice, and do not constitute recommendations to buy or sell any stock, taking into account your objectives and financial position. Our focus is on delivering long-term analysis based on fundamental data. Please note that our analysis may not incorporate the latest company announcements or qualitative information. Simply Wall St holds no positions in the mentioned stocks.
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