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Will Milestone Pharmaceuticals (NASDAQ:MIST) Spend Its Cash Wisely?

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So, the natural question for Milestone Pharmaceuticals (NASDAQ:MIST) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Milestone Pharmaceuticals

How Long Is Milestone Pharmaceuticals' Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. As at September 2022, Milestone Pharmaceuticals had cash of US$77m and no debt. Looking at the last year, the company burnt through US$52m. Therefore, from September 2022 it had roughly 18 months of cash runway. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.

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

How Well Is Milestone Pharmaceuticals Growing?

Milestone Pharmaceuticals boosted investment sharply in the last year, with cash burn ramping by 76%. That's bad enough, but the operating revenue drop of 90% points to a period of uncertainty and, quite potentially, heightened risk for holders." 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.

How Hard Would It Be For Milestone Pharmaceuticals To Raise More Cash For Growth?

Since Milestone Pharmaceuticals can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

Since it has a market capitalisation of US$167m, Milestone Pharmaceuticals' US$52m in cash burn equates to about 31% of its market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

Is Milestone Pharmaceuticals' Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Milestone Pharmaceuticals' cash runway was relatively promising. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 4 warning signs for Milestone Pharmaceuticals that investors should know when investing in the stock.

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.

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