Is Aptorum Group (NASDAQ:APM) In A Good Position To Deliver On Growth Plans?

July 14, 2022
  •  Updated
August 15, 2022
NasdaqGM:APM
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There's no doubt that money can be made by owning shares of unprofitable businesses. 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 history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Aptorum Group (NASDAQ:APM) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

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Does Aptorum Group Have A Long Cash Runway?

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 Aptorum Group last reported its balance sheet in December 2021, it had zero debt and cash worth US$8.4m. Looking at the last year, the company burnt through US$15m. That means it had a cash runway of around 7 months as of December 2021. Notably, one analyst forecasts that Aptorum Group will break even (at a free cash flow level) in about 2 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
NasdaqGM:APM Debt to Equity History July 14th 2022

How Is Aptorum Group's Cash Burn Changing Over Time?

Whilst it's great to see that Aptorum Group has already begun generating revenue from operations, last year it only produced US$1.5m, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. It's possible that the 8.1% reduction in cash burn over the last year is evidence of management tightening their belts as cash reserves deplete. 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.

Can Aptorum Group Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Aptorum Group to raise more cash in the future. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Aptorum Group has a market capitalisation of US$51m and burnt through US$15m last year, which is 29% of the company's market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

How Risky Is Aptorum Group's Cash Burn Situation?

On this analysis of Aptorum Group's cash burn, we think its cash burn reduction was reassuring, while its cash runway has us a bit worried. One real positive is that at least one analyst is forecasting that the company will reach breakeven. Summing up, we think the Aptorum Group's cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 4 warning signs for Aptorum Group you should be aware of, and 1 of them is a bit concerning.

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