We Think Apontis Pharma (ETR:APPH) Can Afford To Drive Business Growth

Simply Wall St · 10/17 04:23

Just because a business does not make any money, does not mean that the stock will go down. Indeed, Apontis Pharma (ETR:APPH) stock is up 141% in the last year, providing strong gains for shareholders. 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 Apontis Pharma's 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.

See our latest analysis for Apontis Pharma

How Long Is Apontis Pharma's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Apontis Pharma last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth €16m. Importantly, its cash burn was €10m over the trailing twelve months. That means it had a cash runway of around 19 months as of June 2024. Importantly, though, analysts think that Apontis Pharma will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
XTRA:APPH Debt to Equity History October 17th 2024

How Well Is Apontis Pharma Growing?

Apontis Pharma actually ramped up its cash burn by a whopping 76% in the last year, which shows it is boosting investment in the business. While that's concerning on it's own, the fact that operating revenue was actually down 13% over the same period makes us positively tremulous. Taken together, we think these growth metrics are a little worrying. Clearly, however, the crucial factor is whether the company will grow its business going forward. 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 Apontis Pharma Raise Cash?

Even though it seems like Apontis Pharma is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. 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.

Apontis Pharma's cash burn of €10m is about 13% of its €79m market capitalisation. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is Apontis Pharma's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Apontis Pharma is burning through its cash. In particular, we think its cash burn relative to its market cap 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. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. 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 2 warning signs for Apontis Pharma (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies with significant insider holdings, and this list of stocks growth stocks (according to analyst forecasts)