Crinetics Pharmaceuticals (NASDAQ:CRNX) Is In A Good Position To Deliver On Growth Plans
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether Crinetics Pharmaceuticals (NASDAQ:CRNX) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for Crinetics Pharmaceuticals
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Crinetics Pharmaceuticals had cash of US$1.4b and no debt. Importantly, its cash burn was US$230m over the trailing twelve months. So it had a cash runway of about 5.9 years from December 2024. Notably, however, analysts think that Crinetics Pharmaceuticals will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.
At first glance it's a bit worrying to see that Crinetics Pharmaceuticals actually boosted its cash burn by 34%, year on year. It's even more troubling to see that operating revenue fell 74% during the period. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
Even though it seems like Crinetics Pharmaceuticals is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
Crinetics Pharmaceuticals has a market capitalisation of US$3.3b and burnt through US$230m last year, which is 6.9% of the company's 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.
Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Crinetics Pharmaceuticals' cash runway was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Crinetics Pharmaceuticals' situation. An in-depth examination of risks revealed 3 warning signs for Crinetics Pharmaceuticals that readers should think about before committing capital to this stock.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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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