We Think Xbrane Biopharma (STO:XBRANE) Can Afford To Drive Business Growth

Just because a business does not make any money, does not mean that the stock will go down. By way of example, Xbrane Biopharma (STO:XBRANE) 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 Xbrane Biopharma shareholders to consider whether its cash burn is concerning. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; 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 Xbrane Biopharma

How Long Is Xbrane Biopharma'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. In September 2020, Xbrane Biopharma had kr124m in cash, and was debt-free. Importantly, its cash burn was kr169m over the trailing twelve months. So it had a cash runway of approximately 9 months from September 2020. Notably, analysts forecast that Xbrane Biopharma will break even (at a free cash flow level) in about 20 months. Essentially, that means the company will either reduce its cash burn, or else require more cash. Depicted below, you can see how its cash holdings have changed over time.

How Is Xbrane Biopharma's Cash Burn Changing Over Time?

In our view, Xbrane Biopharma doesn't yet produce significant amounts of operating revenue, since it reported just kr4.9m in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Over the last year its cash burn actually increased by 42%, which suggests that management are increasing investment in future growth, but not too quickly. That's not necessarily a bad thing, but investors should be mindful of the fact that will shorten the cash runway. While the past is always worth studying, it is the future that matters most of all. 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 Xbrane Biopharma To Raise More Cash For Growth?

Given its cash burn trajectory, Xbrane Biopharma shareholders should already be thinking about how easy it might be for it to raise further cash in the future. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.

Xbrane Biopharma's cash burn of kr169m is about 9.7% of its kr1.7b market capitalisation. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is Xbrane Biopharma's Cash Burn Situation?

On this analysis of Xbrane Biopharma's cash burn, we think its cash burn relative to its market cap was reassuring, while its cash runway has us a bit worried. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Taking a deeper dive, we've spotted 4 warning signs for Xbrane Biopharma you should be aware of, and 1 of them can't be ignored.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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This article by Simply Wall St is general in nature. 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.
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