We're A Little Worried About Aeglea BioTherapeutics' (NASDAQ:AGLE) Cash Burn Rate

Just because a business does not make any money, does not mean that the stock will go down. 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?

So should Aeglea BioTherapeutics (NASDAQ:AGLE) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.

Our analysis indicates that AGLE is potentially overvalued!

How Long Is Aeglea BioTherapeutics' Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. In June 2022, Aeglea BioTherapeutics had US$89m in cash, and was debt-free. In the last year, its cash burn was US$83m. That means it had a cash runway of around 13 months as of June 2022. 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.

How Well Is Aeglea BioTherapeutics Growing?

Aeglea BioTherapeutics boosted investment sharply in the last year, with cash burn ramping by 54%. While that's concerning on it's own, the fact that operating revenue was actually down 49% over the same period makes us positively tremulous. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. 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 Easily Can Aeglea BioTherapeutics Raise Cash?

Since Aeglea BioTherapeutics can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. 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. 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.

Aeglea BioTherapeutics has a market capitalisation of US$30m and burnt through US$83m last year, which is 275% of the company's market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

Is Aeglea BioTherapeutics' Cash Burn A Worry?

On this analysis of Aeglea BioTherapeutics' cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. After considering the data discussed in this article, we don't have a lot of confidence that its cash burn rate is prudent, as it seems like it might need more cash soon. Taking a deeper dive, we've spotted 4 warning signs for Aeglea BioTherapeutics you should be aware of, and 1 of them can't be ignored.

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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.