Here's Why We're Not Too Worried About Abeona Therapeutics' (NASDAQ:ABEO) Cash Burn Situation
We can readily understand why investors are attracted to unprofitable companies. By way of example, Abeona Therapeutics (NASDAQ:ABEO) has seen its share price rise 172% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given its strong share price performance, we think it's worthwhile for Abeona Therapeutics shareholders to consider whether its cash burn is concerning. 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
See our latest analysis for Abeona Therapeutics
Does Abeona Therapeutics Have A Long Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In December 2023, Abeona Therapeutics had US$52m in cash, and was debt-free. Importantly, its cash burn was US$37m over the trailing twelve months. So it had a cash runway of approximately 17 months from December 2023. Notably, analysts forecast that Abeona Therapeutics will break even (at a free cash flow level) in about 20 months. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. The image below shows how its cash balance has been changing over the last few years.
How Well Is Abeona Therapeutics Growing?
Abeona Therapeutics reduced its cash burn by 14% during the last year, which points to some degree of discipline. But the operating revenue growth of 148% was even better. It seems to be growing nicely. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can Abeona Therapeutics Raise More Cash Easily?
Even though it seems like Abeona Therapeutics is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.
Abeona Therapeutics' cash burn of US$37m is about 18% of its US$208m market capitalisation. 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.
Is Abeona Therapeutics' Cash Burn A Worry?
It may already be apparent to you that we're relatively comfortable with the way Abeona Therapeutics is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. Its weak point is its cash burn relative to its market cap, but even that wasn't too bad! There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, Abeona Therapeutics has 3 warning signs (and 1 which is concerning) we think you should know about.
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)
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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.
