We can readily understand why investors are attracted to unprofitable companies. By way of example, Arcellx (NASDAQ:ACLX) has seen its share price rise 147% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given its strong share price performance, we think it's worthwhile for Arcellx shareholders to consider whether its cash burn is concerning. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

When Might Arcellx 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 June 2024, Arcellx had US$517m in cash, and was debt-free. In the last year, its cash burn was US$43m. So it had a very long cash runway of many years from June 2024. Notably, however, analysts think that Arcellx will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. The image below shows how its cash balance has been changing over the last few years.

Is Arcellx's Revenue Growing?

We're hesitant to extrapolate on the recent trend to assess its cash burn, because Arcellx actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. Happily, its operating revenue increased by 349%, which is nice to see, just like a shooting star. 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.

Can Arcellx Raise More Cash Easily?

There's no doubt Arcellx's revenue growth is impressive but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund further growth. Companies can raise capital through either debt or equity. 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).

Arcellx's cash burn of US$43m is about 0.9% of its US$4.5b 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.

So, Should We Worry About Arcellx's Cash Burn?

As you can probably tell by now, we're not too worried about Arcellx's cash burn. For example, we think its revenue growth suggests that the company is on a good path. But it's fair to say that its cash burn relative to its market cap was also very reassuring. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Arcellx (1 can't be ignored!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, and this list of stocks growth stocks (according to analyst forecasts)

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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.