Stock Analysis

We're Hopeful That Aptamer Group (LON:APTA) Will Use Its Cash Wisely

Source: Shutterstock

We can readily understand why investors are attracted to unprofitable companies. For example, although made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Aptamer Group (LON:APTA) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Aptamer Group

Does Aptamer Group Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. Aptamer Group has such a small amount of debt that we'll set it aside, and focus on the UK£6.7m in cash it held at June 2022. In the last year, its cash burn was UK£2.8m. So it had a cash runway of about 2.4 years from June 2022. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

AIM:APTA Debt to Equity History March 15th 2023

How Well Is Aptamer Group Growing?

Aptamer Group actually ramped up its cash burn by a whopping 94% in the last year, which shows it is boosting investment in the business. It seems likely that the vociferous operating revenue growth of 215% during that time may well have given management confidence to ramp investment. On balance, we'd say the company is improving over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For Aptamer Group To Raise More Cash For Growth?

Even though it seems like Aptamer Group 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.

Aptamer Group has a market capitalisation of UK£23m and burnt through UK£2.8m last year, which is 12% of the company's market value. 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 Aptamer Group's Cash Burn A Worry?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Aptamer Group's revenue growth was relatively promising. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Aptamer Group (of which 2 are a bit concerning!) you should know about.

Of course Aptamer Group 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.

Valuation is complex, but we're helping make it simple.

Find out whether Aptamer Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis