Will Pieris Pharmaceuticals (NASDAQ:PIRS) Spend Its Cash Wisely?
Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So should Pieris Pharmaceuticals (NASDAQ:PIRS) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
See our latest analysis for Pieris Pharmaceuticals
Does Pieris Pharmaceuticals Have A Long Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Pieris Pharmaceuticals last reported its balance sheet in September 2023, it had zero debt and cash worth US$45m. Importantly, its cash burn was US$47m over the trailing twelve months. Therefore, from September 2023 it had roughly 11 months of cash runway. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.
How Well Is Pieris Pharmaceuticals Growing?
We reckon the fact that Pieris Pharmaceuticals managed to shrink its cash burn by 20% over the last year is rather encouraging. And arguably the operating revenue growth of 66% was even more impressive. It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Hard Would It Be For Pieris Pharmaceuticals To Raise More Cash For Growth?
Pieris Pharmaceuticals seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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.
Pieris Pharmaceuticals' cash burn of US$47m is about 212% of its US$22m market capitalisation. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.
So, Should We Worry About Pieris Pharmaceuticals' Cash Burn?
On this analysis of Pieris Pharmaceuticals' 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. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Pieris Pharmaceuticals (of which 1 can't be ignored!) you should know about.
Of course Pieris Pharmaceuticals may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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.
