Is FunPep (TSE:4881) In A Good Position To Deliver On Growth Plans?

We can readily understand why investors are attracted to unprofitable companies. 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?

Given this risk, we thought we'd take a look at whether FunPep (TSE:4881) 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). Let's start with an examination of the business' cash, relative to its cash burn.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Might FunPep 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. In September 2025, FunPep had JP¥2.0b in cash, and was debt-free. Looking at the last year, the company burnt through JP¥1.3b. So it had a cash runway of approximately 18 months from September 2025. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.

See our latest analysis for FunPep

How Is FunPep's Cash Burn Changing Over Time?

Whilst it's great to see that FunPep has already begun generating revenue from operations, last year it only produced JP¥3.0m, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. In fact, it ramped its spending strongly over the last year, increasing cash burn by 144%. It's fair to say that sort of rate of increase cannot be maintained for very long, without putting pressure on the balance sheet. Admittedly, we're a bit cautious of FunPep due to its lack of significant operating revenues. We prefer most of the stocks on this list of stocks that analysts expect to grow.

Can FunPep Raise More Cash Easily?

Given its cash burn trajectory, FunPep 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. Commonly, a business will sell new shares in itself to raise cash and drive 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.

FunPep has a market capitalisation of JP¥3.1b and burnt through JP¥1.3b last year, which is 42% of the company's market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).

How Risky Is FunPep's Cash Burn Situation?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought FunPep's cash runway was relatively promising. Summing up, we think the FunPep's cash burn is a risk, based on the factors we mentioned in this article. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for FunPep (2 are potentially serious!) that you should be aware of before investing here.

Of course FunPep 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.