Companies Like MaxCyte (LON:MXCT) Are In A Position To Invest In Growth

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business lost money for years while it grew recurring revenue, if you held shares since 2005, you’d have done very well indeed. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we’d take a look at whether MaxCyte (LON:MXCT) shareholders should be worried about its 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). We’ll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Our analysis indicates that MXCT is potentially overvalued!

When Might MaxCyte Run Out Of Money?

A company’s cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In September 2022, MaxCyte had US$233m in cash, and was debt-free. Importantly, its cash burn was US$27m over the trailing twelve months. That means it had a cash runway of about 8.6 years as of September 2022. 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. You can see how its cash balance has changed over time in the image below.

AIM:MXCT Debt to Equity History November 20th 2022

How Well Is MaxCyte Growing?

MaxCyte actually ramped up its cash burn by a whopping 84% in the last year, which shows it is boosting investment in the business. On the bright side, at least operating revenue was up 30% over the same period, giving some cause for hope. Considering both these factors, we’re not particularly excited by its growth profile. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to…

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