SAB Biotherapeutics (NASDAQ:SABS) Will Have To Spend Its Cash Wisely

editorial-team@simplywallst.com (Simply Wall St)

Mon, Sep 23, 2024, 8:53 AM 3 min read

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should SAB Biotherapeutics (NASDAQ:SABS) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for SAB Biotherapeutics

Does SAB Biotherapeutics Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at June 2024, SAB Biotherapeutics had cash of US$37m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through US$37m. So it had a cash runway of approximately 12 months from June 2024. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis — NasdaqCM:SABS Debt to Equity History September 23rd 2024

How Well Is SAB Biotherapeutics Growing?

Notably, SAB Biotherapeutics actually ramped up its cash burn very hard and fast in the last year, by 131%, signifying heavy investment in the business. That's pretty alarming given that operating revenue dropped 57% over the last year, though the business is likely attempting a strategic pivot. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can SAB Biotherapeutics Raise More Cash Easily?

SAB Biotherapeutics 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. 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.

SAB Biotherapeutics has a market capitalisation of US$31m and burnt through US$37m last year, which is 120% of the company's market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

Is SAB Biotherapeutics' Cash Burn A Worry?

As you can probably tell by now, we're rather concerned about SAB Biotherapeutics' cash burn. Take, for example, its cash burn relative to its market cap, which suggests the company may have difficulty funding itself, in the future. And although we accept its cash runway wasn't as worrying as its cash burn relative to its market cap, it was still a real negative; as indeed were all the factors we considered in this article. After considering the data discussed in this article, we don't have a lot of confidence that its cash burn rate is prudent, as it seems like it might need more cash soon. Separately, we looked at different risks affecting the company and spotted 7 warning signs for SAB Biotherapeutics (of which 3 are a bit concerning!) you should know about.

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)

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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.