Is Bolt Biotherapeutics (NASDAQ:BOLT) In A Good Position To Deliver On Growth Plans?
Just because a business does not make any money, does not mean that the stock will go down. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for Bolt Biotherapeutics (NASDAQ:BOLT) 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for Bolt Biotherapeutics
Does Bolt Biotherapeutics Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2023, Bolt Biotherapeutics had US$126m in cash, and was debt-free. In the last year, its cash burn was US$77m. So it had a cash runway of approximately 20 months from March 2023. 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. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Bolt Biotherapeutics Growing?
Some investors might find it troubling that Bolt Biotherapeutics is actually increasing its cash burn, which is up 14% in the last year. Given that its operating revenue increased 225% in that time, it seems the company has reason to think its expenditure is working well to drive growth. If that revenue does keep flowing reliably, then the company could see a strong improvement in free cash flow simply by reducing growth expenditure. It seems to be growing nicely. 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.
How Easily Can Bolt Biotherapeutics Raise Cash?
While Bolt Biotherapeutics seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.
Bolt Biotherapeutics' cash burn of US$77m is about 125% of its US$62m market capitalisation. Given just how high that expenditure is, relative to the company's market value, we think there's an elevated risk of funding distress, and we would be very nervous about holding the stock.
Is Bolt Biotherapeutics' Cash Burn A Worry?
On this analysis of Bolt Biotherapeutics' cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Bolt Biotherapeutics (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
If you would prefer to check out another company with 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 which are all forecast to grow.
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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.
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