We're Excited To See How Monopar Therapeutics (NASDAQ:MNPR) Uses Its Cash Hoard To Grow
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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should Monopar Therapeutics (NASDAQ:MNPR) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
View our latest analysis for Monopar Therapeutics
How Long Is Monopar Therapeutics's Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2020, Monopar Therapeutics had cash of US$13m and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was US$3.1m over the trailing twelve months. Therefore, from March 2020 it had 4.0 years of cash runway. There's no doubt that this is a reassuringly long runway. Depicted below, you can see how its cash holdings have changed over time.
How Is Monopar Therapeutics's Cash Burn Changing Over Time?
Because Monopar Therapeutics isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. Over the last year its cash burn actually increased by 9.7%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. 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.
Can Monopar Therapeutics Raise More Cash Easily?
While its cash burn is only increasing slightly, Monopar Therapeutics shareholders should still consider the potential need for further cash, down the track. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
Monopar Therapeutics's cash burn of US$3.1m is about 3.1% of its US$101m market capitalisation. 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.
So, Should We Worry About Monopar Therapeutics's Cash Burn?
It may already be apparent to you that we're relatively comfortable with the way Monopar Therapeutics is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. 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. Taking a deeper dive, we've spotted 2 warning signs for Monopar Therapeutics you should be aware of, and 1 of them is significant.
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. 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. Thank you for reading.
