We're Interested To See How Pure Biologics Spólka Akcyjna (WSE:PUR) Uses Its Cash Hoard To Grow

By
Simply Wall St
Published
April 20, 2021
WSE:PUR
Source: Shutterstock

We can readily understand why investors are attracted to unprofitable companies. For example, Pure Biologics Spólka Akcyjna (WSE:PUR) shareholders have done very well over the last year, with the share price soaring by 159%. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given its strong share price performance, we think it's worthwhile for Pure Biologics Spólka Akcyjna shareholders to consider whether its cash burn is concerning. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Pure Biologics Spólka Akcyjna

When Might Pure Biologics Spólka Akcyjna Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at December 2020, Pure Biologics Spólka Akcyjna had cash of zł9.0m and such minimal debt that we can ignore it for the purposes of this analysis. Importantly, its cash burn was zł1.4m over the trailing twelve months. Therefore, from December 2020 it had 6.6 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
WSE:PUR Debt to Equity History April 21st 2021

How Hard Would It Be For Pure Biologics Spólka Akcyjna To Raise More Cash For Growth?

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. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Pure Biologics Spólka Akcyjna has a market capitalisation of zł259m and burnt through zł1.4m last year, which is 0.5% of the company's market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is Pure Biologics Spólka Akcyjna's Cash Burn Situation?

Given it's an early stage company, we don't have a lot of data with which to judge Pure Biologics Spólka Akcyjna's cash burn. Having said that, we can say that its cash runway was a real positive. Overall, we think its cash burn seems perfectly reasonable, and we are not concerned by it. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Pure Biologics Spólka Akcyjna (3 are concerning!) that you should be aware of before investing here.

Of course Pure Biologics Spólka Akcyjna 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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