Here's Why We're Not Too Worried About Kymera Therapeutics' (NASDAQ:KYMR) Cash Burn Situation

Stock Analysis

Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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.

So, the natural question for Kymera Therapeutics (NASDAQ:KYMR) shareholders is whether they should be concerned by its rate of cash burn. 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Kymera Therapeutics

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. When Kymera Therapeutics last reported its balance sheet in June 2023, it had zero debt and cash worth US$368m. In the last year, its cash burn was US$169m. So it had a cash runway of about 2.2 years from June 2023. Importantly, analysts think that Kymera Therapeutics will reach cashflow breakeven in 4 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.

Some investors might find it troubling that Kymera Therapeutics is actually increasing its cash burn, which is up 8.0% in the last year. And we must say we find it concerning that operating revenue dropped 8.9% over the same period. Considering both these factors, we're not particularly excited by its growth profile. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

While Kymera Therapeutics seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Kymera Therapeutics has a market capitalisation of US$1.3b and burnt through US$169m last year, which is 13% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Kymera Therapeutics' cash runway was relatively promising. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Kymera Therapeutics 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)

What are the risks and opportunities for Kymera Therapeutics?

NasdaqGM:KYMR

Kymera Therapeutics

Kymera Therapeutics, Inc., a biopharmaceutical company, focuses on discovering and developing novel small molecule therapeutics that selectively degrade disease-causing proteins by harnessing the body’s own natural protein degradation system.Show more

Rewards

Revenue is forecast to grow 37.96% per year

Risks

Shareholders have been diluted in the past year

Currently unprofitable and not forecast to become profitable over the next 3 years

Share Price

Market Cap

1Y Return

Further research onKymera Therapeutics

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.

Kymera Therapeutics, Inc., a biopharmaceutical company, focuses on discovering and developing novel small molecule therapeutics that selectively degrade disease-causing proteins by harnessing the body’s own natural protein degradation system.

Flawless balance sheet with limited growth.