Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. Indeed, Janux Therapeutics (NASDAQ:JANX) stock is up 573% in the last year, providing strong gains for shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So notwithstanding the buoyant share price, we think it's well worth asking whether Janux Therapeutics' cash burn is too risky. 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). Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Janux Therapeutics

How Long Is Janux Therapeutics' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2024, Janux Therapeutics had cash of US$646m and no debt. In the last year, its cash burn was US$48m. That means it had a cash runway of very many years as of June 2024. 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. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Janux Therapeutics Growing?

We reckon the fact that Janux Therapeutics managed to shrink its cash burn by 20% over the last year is rather encouraging. And arguably the operating revenue growth of 95% was even more impressive. We think it is growing rather well, upon reflection. 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.

How Easily Can Janux Therapeutics Raise Cash?

While Janux Therapeutics 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. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Janux Therapeutics' cash burn of US$48m is about 1.7% of its US$2.8b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

Is Janux Therapeutics' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Janux Therapeutics 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 reduction, but even that wasn't too bad! Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Janux Therapeutics (1 is a bit concerning!) that you should be aware of before investing here.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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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.