U.S. markets close in 1 hour 32 minutes
  • S&P 500

    4,354.44
    -3.29 (-0.08%)
     
  • Dow 30

    33,932.73
    -37.74 (-0.11%)
     
  • Nasdaq

    14,743.84
    +29.93 (+0.20%)
     
  • Russell 2000

    2,188.43
    +6.23 (+0.29%)
     
  • Crude Oil

    70.60
    +0.31 (+0.44%)
     
  • Gold

    1,776.10
    +12.30 (+0.70%)
     
  • Silver

    22.53
    +0.33 (+1.49%)
     
  • EUR/USD

    1.1730
    +0.0003 (+0.02%)
     
  • 10-Yr Bond

    1.3230
    +0.0140 (+1.07%)
     
  • GBP/USD

    1.3660
    +0.0000 (+0.00%)
     
  • USD/JPY

    109.2200
    -0.2000 (-0.18%)
     
  • BTC-USD

    42,594.91
    -1,076.24 (-2.46%)
     
  • CMC Crypto 200

    1,058.67
    -5.17 (-0.49%)
     
  • FTSE 100

    6,980.98
    +77.07 (+1.12%)
     
  • Nikkei 225

    29,839.71
    -660.34 (-2.17%)
     

Here's Why We're Not Too Worried About PolyPid's (NASDAQ:PYPD) Cash Burn Situation

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should PolyPid (NASDAQ:PYPD) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for PolyPid

Does PolyPid Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2020, PolyPid had cash of US$44m and no debt. In the last year, its cash burn was US$23m. That means it had a cash runway of around 23 months as of December 2020. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.

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

How Is PolyPid's Cash Burn Changing Over Time?

PolyPid didn't record any revenue over the last year, indicating that it's an early stage company still developing its 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 25% in the last year, it seems that the company is ratcheting up investment in the business over time. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. 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 Easily Can PolyPid Raise Cash?

Given its cash burn trajectory, PolyPid 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. Commonly, a business will sell new shares in itself to raise cash and drive 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.

PolyPid has a market capitalisation of US$175m and burnt through US$23m last year, which is 13% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

How Risky Is PolyPid's Cash Burn Situation?

On this analysis of PolyPid's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Separately, we looked at different risks affecting the company and spotted 3 warning signs for PolyPid (of which 1 can't be ignored!) you should know about.

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.

This article by Simply Wall St is general in nature. 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.

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