We Think Context Therapeutics (NASDAQ:CNTX) Can Afford To Drive Business Growth

editorial-team@simplywallst.com (Simply Wall St)

Mon, Sep 16, 2024, 6:42 AM 4 min read

There's no doubt that money can be made by owning shares of unprofitable businesses. Indeed, Context Therapeutics (NASDAQ:CNTX) stock is up 121% in the last year, providing strong gains for shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given its strong share price performance, we think it's worthwhile for Context Therapeutics shareholders to consider whether its cash burn is concerning. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Context Therapeutics

How Long Is Context Therapeutics' 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 June 2024, Context Therapeutics had US$102m in cash, and was debt-free. Importantly, its cash burn was US$18m over the trailing twelve months. So it had a cash runway of about 5.5 years from June 2024. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis — NasdaqCM:CNTX Debt to Equity History September 16th 2024

How Is Context Therapeutics' Cash Burn Changing Over Time?

Context Therapeutics didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. With the cash burn rate up 3.5% in the last year, it seems that the company is ratcheting up investment in the business over time. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. 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.

How Easily Can Context Therapeutics Raise Cash?

While its cash burn is only increasing slightly, Context Therapeutics shareholders should still consider the potential need for further cash, down the track. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Context Therapeutics has a market capitalisation of US$157m and burnt through US$18m last year, which is 12% of the company's market value. 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.

How Risky Is Context Therapeutics' Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Context Therapeutics is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Context Therapeutics (of which 3 are concerning!) you should know about.

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.