Here's Why We're Not Too Worried About Alpine Immune Sciences' (NASDAQ:ALPN) Cash Burn Situation
Just because a business does not make any money, does not mean that the stock will go down. Indeed, Alpine Immune Sciences (NASDAQ:ALPN) stock is up 405% in the last year, providing strong gains for shareholders. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
Given its strong share price performance, we think it's worthwhile for Alpine Immune Sciences shareholders to consider whether its cash burn is concerning. 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 Alpine Immune Sciences
When Might Alpine Immune Sciences Run Out Of Money?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. When Alpine Immune Sciences last reported its December 2023 balance sheet in March 2024, it had zero debt and cash worth US$327m. Looking at the last year, the company burnt through US$77m. That means it had a cash runway of about 4.2 years as of December 2023. A runway of this length affords the company the time and space it needs to develop the business. The image below shows how its cash balance has been changing over the last few years.
How Well Is Alpine Immune Sciences Growing?
Alpine Immune Sciences boosted investment sharply in the last year, with cash burn ramping by 75%. While that isa little concerning at a glance, the company has a track record of recent growth, evidenced by the impressive 96% growth in revenue, over the very same year. On balance, we'd say the company is improving over time. 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 Alpine Immune Sciences To Raise More Cash For Growth?
There's no doubt Alpine Immune Sciences seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. 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.
Alpine Immune Sciences has a market capitalisation of US$2.5b and burnt through US$77m last year, which is 3.0% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
Is Alpine Immune Sciences' Cash Burn A Worry?
It may already be apparent to you that we're relatively comfortable with the way Alpine Immune Sciences is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Alpine Immune Sciences (1 doesn't sit too well with us!) 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.
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.
