Just because a business does not make any money, does not mean that the stock will go down. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So, the natural question for Altimmune (NASDAQ:ALT) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
When Might Altimmune 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 September 2021, Altimmune had cash of US$200m and no debt. In the last year, its cash burn was US$82m. So it had a cash runway of about 2.4 years from September 2021. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.
How Well Is Altimmune Growing?
One thing for shareholders to keep front in mind is that Altimmune increased its cash burn by 253% in the last twelve months. While that's concerning on it's own, the fact that operating revenue was actually down 47% over the same period makes us positively tremulous. Considering these two factors together makes us nervous about the direction the company seems to be heading. 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 Easily Can Altimmune Raise Cash?
Altimmune revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.
Altimmune's cash burn of US$82m is about 32% of its US$259m market capitalisation. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.
So, Should We Worry About Altimmune's Cash Burn?
On this analysis of Altimmune's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Summing up, we think the Altimmune's cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 5 warning signs for Altimmune you should be aware of, and 1 of them makes us a bit uncomfortable.
Of course Altimmune 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.
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