Companies like Fate Therapeutics (NASDAQ: FATE) can afford to invest in growth
Even when a company loses money, it is possible for shareholders to make money if they buy a good company at the right price. For example, Therapeutic destiny Shareholders (NASDAQ: FATE) did very well last year, with the stock price climbing 128%. Still, only an idiot would ignore the risk that a loss-making company burns its cash too quickly.
So, despite the strong share price, we believe it is worth considering whether Fate Therapeutics’ cash consumption is too risky. For the purposes of this article, cash consumption is the annual rate at which an unprofitable business spends money to finance its growth; its negative free cash flow. First, we will determine its cash trail by comparing its cash consumption with its cash reserves.
Check out our latest review for Fate Therapeutics
Does Fate Therapeutics have a long cash flow trail?
A company’s cash flow trail is the time it would take to deplete its cash reserves at its current rate of cash consumption. As of March 2021, Fate Therapeutics had US $ 790 million in cash and no debt. In the past year, its cash consumption amounted to US $ 47 million. So it had a very long, multi-year cash trail starting in March 2021. More importantly, analysts believe Fate Therapeutics will break even before that date. In this case, he may never reach the end of his cash trail. Pictured below, you can see how his cash holdings have changed over time.
How well is Fate Therapeutics growing?
We find it quite encouraging that Fate Therapeutics managed to reduce its cash consumption by 52% over the past year. But it was the 279% operating revenue growth that really shone. Considering these factors, we are quite impressed with its growth trajectory. If the past is always worth studying, it is the future that matters most. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.
How difficult would it be for Fate Therapeutics to raise more money for growth?
There is no doubt that Fate Therapeutics appears to be in a good enough position to manage its cash consumption, but even if it is only hypothetical, it is still worth wondering how easily it could raise more money. to finance growth. In general, a listed company can raise new liquidity by issuing shares or going into debt. One of the main advantages of publicly traded companies is that they can sell stocks to investors to raise funds and finance their growth. By looking at a company’s cash consumption relative to its market capitalization, we get an idea of how many shareholders would be diluted if the company were to raise enough cash to cover another year’s cash consumption.
Fate Therapeutics’ cash consumption of US $ 47 million represents approximately 0.6% of its market capitalization of US $ 7.4 billion. So he could almost certainly borrow a little to finance another year’s growth, or he could easily raise cash by issuing a few shares.
How risky is Fate Therapeutics’ money-consuming situation?
As you can probably see by now, we’re not too worried about Fate Therapeutics consuming money. For example, we believe that its revenue growth suggests that the business is on the right track. But it’s fair to say that his reduction in cash consumption was also very reassuring. Shareholders can be happy that analysts expect it to break even. After looking at a series of factors in this article, we’re pretty relaxed about its consumption of cash, as the company appears to be in a good position to continue funding its growth. It is important for readers to be aware of the risks that can affect business operations, and we have selected 2 warning signs for Fate Therapeutics that investors need to know when investing in stocks.
Of course, you might find a fantastic investment looking elsewhere. So take a look at this free list of companies that insiders buy, and this list of growth stocks (according to analysts’ forecasts)
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