Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should Atreca (NASDAQ:BCEL) 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'. Let's start with an examination of the business' cash, relative to its cash burn.
See our latest analysis for Atreca
Does Atreca Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Atreca last reported its balance sheet in March 2023, it had zero debt and cash worth US$56m. In the last year, its cash burn was US$71m. So it had a cash runway of approximately 10 months from March 2023. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.
How Is Atreca's Cash Burn Changing Over Time?
Atreca didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. Given the length of the cash runway, we'd interpret the 24% reduction in cash burn, in twelve months, as prudent if not necessary for capital preservation. 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 Atreca Raise More Cash Easily?
While Atreca is showing a solid reduction in its cash burn, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.
Since it has a market capitalisation of US$36m, Atreca's US$71m in cash burn equates to about 194% of its market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.