Investors should always be wary of businesses that are low on cash. While they can always raise money through debt or by issuing more shares, neither option is particularly attractive to shareholders as the former leads to rising costs while the latter causes dilution.
A couple of risky stocks that don't have much cash on their books today include Bluebird Bio (BLUE -4.91%) and Bed Bath & Beyond (BBBY). These are both stocks investors need to be very careful with as they require a high risk tolerance.
1. Bluebird Bio
In August, shares of Bluebird Bio popped as the Food and Drug Administration approved Zynteglo to treat people with beta-thalassemia who require ongoing blood transfusions. And while the news is promising, the market for the treatment isn't terribly large, with Bluebird estimating that there are between 1,300 and 1,500 people in the U.S. with this specific condition that could benefit from the treatment.
The treatment's $2.8 million price tag means Bluebird doesn't need a huge population to generate significant sales from the gene therapy, but the high cost could also further limit how many people end up being able to afford it.
The problem for Bluebird is that the biotech company could use some cash -- soon. As of the end of June, it reported less than $82 million in cash and cash equivalents. Its net loss has totaled $222 million through the first six months of the year, and during that time, it has used up close to $220 million in cash from its day-to-day operations.
Bluebird does have the potential for some better results on the news of the FDA approval of Zynteglo, but it could take some time before that happens. In the meantime, its high rate of cash burn and relatively low cash balance means that it's likely going to need to raise money in the not-too-distant future. Investors are better off waiting to see how strong revenue from Zynteglo turns out to be before buying the healthcare stock.
2. Bed Bath & Beyond
Bed Bath & Beyond has gone from boom to bust in the past few months. The stock closed at less than $9 last week, down more than 70% from its 52-week high of $30. The retail company's business has struggled to generate growth, and losses have been accumulating -- they have totaled $866 million over just the past four quarters. As of the end of May, its cash and cash equivalents balance was just $108 million.
In an effort to turn things around, the company recently announced that it would be laying off 20% of its staff and close 150 stores. Investors also learned of some sad news recently with the passing of the company's Chief Financial Officer, Gustavo Arnal.
Bed Bath & Beyond's business is in turmoil, and management has a tall task ahead. Although the company has secured over $500 million worth of new financing, its losses are significant and the need to raise more money may not go away soon. In the past 12 months, Bed Bath & Beyond has used up $337 million through its regular operating activities.
The company's cost-cutting efforts may not be enough to make the stock a good buy. Retail stocks have been struggling this year amid inflation and supply chain issues, problems that Bed Bath & Beyond is not immune to. The retailer's future is questionable, and investors are better off waiting on this stock to see how well the company's turnaround goes.
