U.S. markets closed
  • S&P 500

    4,443.11
    -12.37 (-0.28%)
     
  • Dow 30

    34,869.37
    +71.37 (+0.21%)
     
  • Nasdaq

    14,969.97
    -77.73 (-0.52%)
     
  • Russell 2000

    2,281.00
    +32.93 (+1.46%)
     
  • Crude Oil

    75.41
    -0.04 (-0.05%)
     
  • Gold

    1,750.60
    -1.40 (-0.08%)
     
  • Silver

    23.74
    +1.08 (+4.76%)
     
  • EUR/USD

    1.1703
    +0.0001 (+0.01%)
     
  • 10-Yr Bond

    1.4840
    +0.0240 (+1.64%)
     
  • GBP/USD

    1.3699
    -0.0006 (-0.04%)
     
  • USD/JPY

    110.9600
    -0.0180 (-0.02%)
     
  • BTC-USD

    42,355.66
    -889.62 (-2.06%)
     
  • CMC Crypto 200

    1,062.43
    -39.09 (-3.55%)
     
  • FTSE 100

    7,063.40
    +11.92 (+0.17%)
     
  • Nikkei 225

    30,240.06
    -8.75 (-0.03%)
     

We're Hopeful That Athira Pharma (NASDAQ:ATHA) Will Use Its Cash Wisely

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

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Athira Pharma (NASDAQ:ATHA) shareholders is whether they should be concerned by its rate of 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Athira Pharma

When Might Athira Pharma Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2021, Athira Pharma had cash of US$285m and no debt. Looking at the last year, the company burnt through US$37m. That means it had a cash runway of about 7.6 years as of June 2021. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. You can see how its cash balance has changed over time in the image below.

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

How Is Athira Pharma's Cash Burn Changing Over Time?

Athira Pharma 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. Remarkably, it actually increased its cash burn by 527% in the last year. That kind of sharp increase in spending may pay off, but is generally considered quite risky. 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 Athira Pharma Raise More Cash Easily?

Given its cash burn trajectory, Athira Pharma 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. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Athira Pharma has a market capitalisation of US$401m and burnt through US$37m last year, which is 9.3% 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 Athira Pharma's Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Athira Pharma's cash burn. For example, we think its cash runway suggests that the company is on a good path. While we must concede that its increasing cash burn is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, Athira Pharma has 4 warning signs (and 2 which don't sit too well with us) 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)

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.

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