Feb. 17, 2021
It is so surprising for me to learn more about BLUE stock. I understand that it is important for me to evaluate the risk of BLUE stock. I already purchased 100 shares of BLUE after more than 38% price drop on Feb. 16, 2021.
My first hour research
I start to read the article about BLUE stock, and I like to learn from my investment as well. I should be more careful since it is risky if the business cannot make profit.
Does bluebird bio 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 September 2020, bluebird bio had US$1.2b in cash, and was debt-free. Importantly, its cash burn was US$509m over the trailing twelve months. That means it had a cash runway of about 2.4 years as of September 2020. Importantly, analysts think that bluebird bio will reach cashflow breakeven in 5 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. You can see how its cash balance has changed over time in the image below.
How Well Is bluebird bio Growing?
bluebird bio reduced its cash burn by 17% during the last year, which points to some degree of discipline. But this achievement is overshadowed by the brilliant operating revenue growth of 364%. It seems to be growing nicely. 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.
Can bluebird bio Raise More Cash Easily?
While bluebird bio seems to be in a decent position, we reckon it is still worth thinking about how easily it could raise more cash, if that proved desirable. 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. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
bluebird bio's cash burn of US$509m is about 16% of its US$3.1b market capitalisation. 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.
So, Should We Worry About bluebird bio's Cash Burn?
It may already be apparent to you that we're relatively comfortable with the way bluebird bio is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. Its weak point is its cash burn relative to its market cap, but even that wasn't too bad! One real positive is that analysts are forecasting that the company will reach breakeven. 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 worried. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for bluebird bio that potential shareholders should take into account before putting money into a stock.