There’s no doubt that it’s possible to profit from owning shares in unprofitable companies. Biotechnology or mining exploration companies, for example, often lose money for years before hitting the sweet spot of discovering a new treatment or mineral. But history often celebrates those rare successes while the failures are often forgotten. Anyone remember Pets.com?
So a natural question for Nautilus Biotechnology (NASDAQ:NAUT) shareholders is whether they should be concerned about the company’s cash burn rate. For the purposes of this article, cash burn refers to the annual rate at which an unprofitable company spends cash to fund growth, i.e. negative free cash flow. We first compare its cash burn to its cash reserves to determine the company’s cash runway.
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When will Nautilus Biotechnology run out of cash?
A company’s cash runway is the time it would take to burn through its cash reserves at its current cash burn rate. When Nautilus Biotechnology last reported its balance sheet in April 2024, it had zero debt and $181 million in cash. Last year’s cash burn was $58 million. So it has a cash runway of 3.1 years from March 2024. This is certainly a reassuringly long runway. Below you can see how its cash holdings have changed over time.
NasdaqGS:NAUT Debt to Equity Ratio History July 27, 2024
How has Nautilus Biotechnology’s cash burn changed over time?
Nautilus Biotechnology didn’t record any revenue last year, which tells us it’s an early-stage company that’s still operating. So, while we can’t look at sales to understand growth, we can look at the change in cash burn to understand how expenses are trending over time. The cash burn rate has increased by 19% over the last year, and it looks like the company is increasing its investments in its business over time. This isn’t necessarily a bad thing, but investors should be mindful of the fact that the cash runway is getting shorter. It’s always worth studying the past, but it’s the future that matters most. Therefore, we recommend taking a peek at how much the company is expected to grow over the next few years.
Can Nautilus Biotechnology Raise Money Easily?
Given the company’s cash burn trajectory, Nautilus Biotechnology shareholders may want to consider how easily the company could raise more capital despite its solid cash runway. Companies can raise capital through either debt or equity. Typically, companies sell new shares in their own company to raise cash to fuel growth. Looking at a company’s cash burn relative to its market capitalization can give us an idea of how much dilution shareholders would face if the company needed to raise enough cash to cover its cash burn over the next year.
Nautilus Biotechnology has a market cap of $361 million and burned $58 million last year, which represents 16% of the company’s market cap. As a result, while there will be some dilution, the company is expected to have no trouble raising more capital for growth.
So should you be worried about Nautilus Biotechnology’s cash burn?
You may already know that we’re relatively comfortable with where Nautilus Biotechnology is burning cash. For example, we think its cash runway suggests the company is on a good track. While the company’s rising cash burn is certainly reason for hesitation, the other metrics discussed in this article paint a more positive picture overall. Taking into account all the factors discussed in this article, we’re not too worried about the company’s cash burn, but we think shareholders should keep an eye on how it plays out. On a separate note, Nautilus Biotechnology has 3 warning signs (and 2 that can’t be ignored) you should be aware of.
If you’d prefer to check out other companies with even 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 with forecast growth.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
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