Yahoo Finance Is Precigen (NASDAQ:PGEN) In A Good Position To Invest In Growth?
Just because a business does not make any money, does not mean that the stock will go down. 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. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
Given this risk, we thought we'd take a look at whether Precigen (NASDAQ:PGEN) shareholders should be worried about its cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for Precigen
Does Precigen Have A Long Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In March 2024, Precigen had US$45m in cash, and was debt-free. Looking at the last year, the company burnt through US$68m. That means it had a cash runway of around 8 months as of March 2024. Notably, analysts forecast that Precigen will break even (at a free cash flow level) in about 3 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.
How Well Is Precigen Growing?
In the last twelve months, Precigen kept its cash burn steady. However, its operating revenue actually tanked by 77%, which is quite concerning in our book. Considering these two factors together makes us nervous about the direction the company seems to be heading. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can Precigen Raise More Cash Easily?
Precigen revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Precigen's cash burn of US$68m is about 17% of its US$406m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
Is Precigen's Cash Burn A Worry?
Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Precigen's cash burn relative to its market cap was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Precigen that investors should know when investing in the 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)
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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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