We're Not Very Worried About Coya Therapeutics' (NASDAQ:COYA) Cash Burn Rate
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, Coya Therapeutics (NASDAQ:COYA) shareholders have done very well over the last year, with the share price soaring by 125%. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
In light of its strong share price run, we think now is a good time to investigate how risky Coya Therapeutics' cash burn is. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for Coya Therapeutics
When Might Coya Therapeutics Run Out Of Money?
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. As at December 2023, Coya Therapeutics had cash of US$33m and no debt. Importantly, its cash burn was US$12m over the trailing twelve months. That means it had a cash runway of about 2.8 years as of December 2023. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.
How Is Coya Therapeutics' Cash Burn Changing Over Time?
Whilst it's great to see that Coya Therapeutics has already begun generating revenue from operations, last year it only produced US$6.0m, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. Over the last year its cash burn actually increased by a very significant 51%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. 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 Hard Would It Be For Coya Therapeutics To Raise More Cash For Growth?
Given its cash burn trajectory, Coya Therapeutics shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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. 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.
Coya Therapeutics has a market capitalisation of US$129m and burnt through US$12m last year, which is 9.1% 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 Coya Therapeutics' Cash Burn A Worry?
As you can probably tell by now, we're not too worried about Coya Therapeutics' cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. 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, we conducted an in-depth investigation of the company, and identified 4 warning signs for Coya Therapeutics (1 doesn't sit too well with us!) that you should be aware of before investing here.
Of course Coya Therapeutics 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.
