New Zealand markets close in 3 hours 54 minutes
  • NZX 50

    12,179.51
    -32.45 (-0.27%)
     
  • NZD/USD

    0.6320
    -0.0010 (-0.16%)
     
  • NZD/EUR

    0.5891
    -0.0003 (-0.05%)
     
  • ALL ORDS

    7,710.70
    -29.80 (-0.38%)
     
  • ASX 200

    7,504.00
    -26.10 (-0.35%)
     
  • OIL

    78.47
    0.00 (0.00%)
     
  • GOLD

    1,886.80
    -3.90 (-0.21%)
     
  • NASDAQ

    12,495.38
    -232.90 (-1.83%)
     
  • FTSE

    7,885.17
    +20.46 (+0.26%)
     
  • Dow Jones

    33,949.01
    -207.68 (-0.61%)
     
  • DAX

    15,412.05
    +91.17 (+0.60%)
     
  • Hang Seng

    21,283.52
    -15.18 (-0.07%)
     
  • NIKKEI 225

    27,606.46
    -79.01 (-0.29%)
     
  • NZD/JPY

    82.9800
    +0.0810 (+0.10%)
     

Here's Why We're Not Too Worried About Nautilus Biotechnology's (NASDAQ:NAUT) Cash Burn Situation

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, the natural question for Nautilus Biotechnology (NASDAQ:NAUT) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Nautilus Biotechnology

Does Nautilus Biotechnology Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2022, Nautilus Biotechnology had cash of US$258m and no debt. Importantly, its cash burn was US$49m over the trailing twelve months. That means it had a cash runway of about 5.3 years as of September 2022. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
debt-equity-history-analysis

How Is Nautilus Biotechnology's Cash Burn Changing Over Time?

Because Nautilus Biotechnology isn't currently generating revenue, we consider it an early-stage 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. With the cash burn rate up 40% in the last year, it seems that the company is ratcheting up investment in the business over time. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For Nautilus Biotechnology To Raise More Cash For Growth?

Given its cash burn trajectory, Nautilus Biotechnology shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Since it has a market capitalisation of US$213m, Nautilus Biotechnology's US$49m in cash burn equates to about 23% of its market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

Is Nautilus Biotechnology's Cash Burn A Worry?

On this analysis of Nautilus Biotechnology's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Taking a deeper dive, we've spotted 3 warning signs for Nautilus Biotechnology you should be aware of, and 2 of them can't be ignored.

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)

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here