Is Adicet Bio (NASDAQ:ACET) In A Good Position To Invest In Growth?

We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. 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 this risk, we thought we'd take a look at whether Adicet Bio (NASDAQ:ACET) 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Adicet Bio

When Might Adicet Bio 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. When Adicet Bio last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth US$202m. In the last year, its cash burn was US$93m. So it had a cash runway of about 2.2 years from September 2024. Importantly, analysts think that Adicet Bio will reach cashflow breakeven in 3 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.

How Is Adicet Bio's Cash Burn Changing Over Time?

Because Adicet Bio 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. As it happens, the company's cash burn reduced by 7.1% over the last year, which suggests that management are maintaining a fairly steady rate of business development, albeit with a slight decrease in spending. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Adicet Bio Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Adicet Bio to raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.

Adicet Bio's cash burn of US$93m is about 122% of its US$76m market capitalisation. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

How Risky Is Adicet Bio's Cash Burn Situation?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Adicet Bio's cash runway was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. Summing up, we think the Adicet Bio'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 3 warning signs for Adicet Bio (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.