We think Recursion Pharmaceuticals (NASDAQ:RXRX) is an easy buy to drive business growth

Even if a business is losing money, shareholders can make money if they buy a good business at the right price. For example, even though software-as-a-service business Salesforce.com has lost money over the years as recurring revenue grew, if you’d held the stock since 2005, you’d have done very well indeed. But while its successes are well-known, investors shouldn’t ignore too many unprofitable companies that simply burn through all their cash and fail.

Given this risk, we thought we’d investigate. Recursion Pharmaceuticals ( NASDAQ:RXRX ) shareholders should be worried about the cash burn. For the purposes of this article, cash burn is the annual amount that a non-profit company spends in cash to finance its growth. Its negative free cash flow. To calculate cash flow, we start by comparing cash burn to cash reserves.

Check out our latest analysis of Recursion Pharmaceuticals

When do recurring pharmaceuticals expire?

A company’s cash flow is calculated by dividing its cash reserves by its cash burn. As of December 2022, Recursion Pharmaceuticals had US$550m in cash and minimal debt, so we can ignore it for the purposes of this analysis. Last year the cash burn was US$121m. This means it had a financial runway of about 4.5 years from December 2022. A runway of this length gives the company the time and space it needs to develop its business. Shown below, you can see how the cash holdings have changed over time.

How is Recursion Pharmaceuticals growing?

We think it’s encouraging that Recursion Pharmaceuticals was able to reduce cash burn by 39% compared to last year. But the 291% growth in operating income was better. We think it’s growing well on meditation. Clearly, what matters is whether the company can grow its business in the future. For that, it makes sense to look at our analyst forecasts for the company.

How easily can medicine add money?

While Recursion Pharmaceuticals appears to be in a good position, we still think it’s worth considering how easily it can raise additional funds if needed. Generally, a listed business can raise new funds by issuing shares or taking on debt. Typically, a business sells new shares of its own to raise cash and generate growth. By comparing the company’s annual cash burn to its total market capitalization, we can estimate how many shares it would issue to run the company for another year (with the same burn rate).

Recursion Pharmaceuticals’ cash burn of US$121m is about 7.8% of its US$1.6b market capitalization. That’s a low amount, so we assume the company could raise more cash to fund its growth, either by diluting it a bit or simply borrowing some money.

Is burning prescription drug cash a concern?

As you can probably tell by now, we’re not too worried about Recursion Pharmaceuticals’ cash burn. In particular, we think that the increase in income is evidence that the company is well above its expenses. And although the reduction in cash burn wasn’t that dramatic, it was still positive. After considering the various metrics mentioned in this report, we are very comfortable with how the company will spend its funds as it looks on track to meet its medium-term needs. We took a closer look 3 warning signs for Recursion Pharmaceuticals You have to know, and 1 is a bit unpleasant.

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