Business growth

We believe Mirati Therapeutics (NASDAQ:MRTX) can afford to drive business 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, biotechnology and mining exploration companies often lose money for years before succeeding with a new treatment or mineral discovery. That said, unprofitable businesses are risky because they could potentially burn all their money and get into trouble.

Given this risk, we thought we would examine whether Therapeutic Mirati (NASDAQ:MRTX) shareholders should be concerned about its cash burn. For the purposes of this article, we will define cash burn as the amount of money the business spends each year to finance its growth (also known as negative free cash flow). The first step is to compare its cash consumption with its cash reserves, to give us its “cash trail”.

Check out our latest analysis for Mirati Therapeutics

How long does the Mirati Therapeutics cash trail last?

A company’s cash track is the time it would take to deplete its cash reserves at its current rate of cash consumption. When Mirati Therapeutics last published its balance sheet in June 2022, it had no debt and cash worth $1.2 billion. Importantly, its cash burn was US$496 million over the last twelve months. Therefore, as of June 2022, it had 2.4 years of cash trail. Notably, analysts expect Mirati Therapeutics to break even (at the free cash flow level) in about 4 years. Essentially, this means the business will reduce its cash burn or need more cash. You can see how his cash balance has changed over time in the image below.

NasdaqGS: MRTX Debt to Equity October 8, 2022

How is Mirati Therapeutics growing?

On the face of it, it’s a bit worrying that Mirati Therapeutics actually increased its cash burn by 36%, year-over-year. Given that he has increased operating income by 495% over the same period, we think management is simply more focused on growth than preserving cash. It may well have excellent opportunities to invest in growth. It seems to be growing well. Obviously, however, the crucial factor is whether the company will expand its business in the future. You might want to take a look at the company’s expected growth over the next few years.

How difficult would it be for Mirati Therapeutics to raise more funds for growth?

There’s no doubt that Mirati Therapeutics seems to be in a pretty good position to manage its cash burn, but even if it’s only hypothetical, it’s still worth considering how easily it could raise more cash. to finance growth. Companies can raise capital either through debt or equity. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise funds and finance their growth. By comparing a company’s annual cash burn to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the company running for another year (at the same burn rate).

With a market cap of $3.7 billion, Mirati Therapeutics’ cash burn of $496 million equates to about 13% of its market value. As a result, we risk the company being able to raise more cash for growth without too much trouble, but at the cost of some dilution.

Is Mirati Therapeutics’ cash burn a concern?

Even though its growing cash burn makes us a bit nervous, we are bound to mention that we thought Mirati Therapeutics’ revenue growth was quite promising. A real bright spot is that analysts expect the company to break even. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don’t think they should be concerned. By examining the risks in depth, we have identified 2 warning signs for Mirati Therapeutics which you should be aware of before investing.

Sure, you might find a fantastic investment by looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analyst forecasts)

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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