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Is Sangamo Therapeutics (NASDAQ:SGMO) In A Good Position To Deliver On Growth Plans?

Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com? So, the natural question for Sangamo Therapeutics (NASDAQ:SGMO) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves. Does Sangamo Therapeutics Have A Long Cash Runway? 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. When Sangamo Therapeutics last reported its balance sheet in June 2022, it had zero debt and cash worth US$316m. In the last year, its cash burn was US$241m. So it had a cash runway of approximately 16 months from June 2022. Notably, analysts forecast that Sangamo Therapeutics will break even (at a free cash flow level) in about 4 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 Sangamo Therapeutics Growing? Notably, Sangamo Therapeutics actually ramped up its cash burn very hard and fast in the last year, by 109%, signifying heavy investment in the business. As if that's not bad enough, the operating revenue also dropped by 17%, making us very wary indeed. Taken together, we think these growth metrics are a little worrying. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company. Can Sangamo Therapeutics Raise More Cash Easily? Sangamo Therapeutics revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. 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). Sangamo Therapeutics' cash burn of US$241m is about 29% of its US$828m market capitalisation. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution. Is Sangamo Therapeutics' Cash Burn A Worry? Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Sangamo Therapeutics' cash runway was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. Taking an in-depth view of risks, we've identified 2 warning signs for Sangamo Therapeutics that you should be aware of before investing. 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) 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. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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