Here's Why We're Not Too Worried About ME Therapeutics Holdings' (CSE:METX) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. By way of example, ME Therapeutics Holdings (CSE:METX) has seen its share price rise 117% over the last year, delighting many shareholders. 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.

Given its strong share price performance, we think it's worthwhile for ME Therapeutics Holdings shareholders to consider whether its cash burn is concerning. 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.

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When Might ME Therapeutics Holdings Run Out Of Money?

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 ME Therapeutics Holdings last reported its November 2024 balance sheet in January 2025, it had zero debt and cash worth CA$1.3m. Importantly, its cash burn was CA$547k over the trailing twelve months. That means it had a cash runway of about 2.4 years as of November 2024. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

See our latest analysis for ME Therapeutics Holdings

How Is ME Therapeutics Holdings' Cash Burn Changing Over Time?

Because ME Therapeutics Holdings isn't currently generating revenue, we consider it an early-stage 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. With the cash burn rate up 4.1% in the last year, it seems that the company is ratcheting up investment in the business over time. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. Admittedly, we're a bit cautious of ME Therapeutics Holdings due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

How Easily Can ME Therapeutics Holdings Raise Cash?

While its cash burn is only increasing slightly, ME Therapeutics Holdings 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).

ME Therapeutics Holdings has a market capitalisation of CA$275m and burnt through CA$547k last year, which is 0.2% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

So, Should We Worry About ME Therapeutics Holdings' Cash Burn?

It may already be apparent to you that we're relatively comfortable with the way ME Therapeutics Holdings 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. Looking at all the measures in this article, together, we're not worried about its rate of cash burn, which seems to be under control. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for ME Therapeutics Holdings that potential shareholders should take into account before putting money into a stock.

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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.