Is Atara Biotherapeutics (NASDAQ:ATRA) In A Good Position To Deliver On Growth Plans?

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Atara Biotherapeutics (NASDAQ:ATRA) 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'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Atara Biotherapeutics

When Might Atara Biotherapeutics Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2024, Atara Biotherapeutics had US$67m in cash, and was debt-free. Importantly, its cash burn was US$95m over the trailing twelve months. So it had a cash runway of approximately 9 months from September 2024. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. However, if we extrapolate the company's recent cash burn trend, then it would have a longer cash run way. The image below shows how its cash balance has been changing over the last few years.

How Well Is Atara Biotherapeutics Growing?

We reckon the fact that Atara Biotherapeutics managed to shrink its cash burn by 53% over the last year is rather encouraging. But this achievement is overshadowed by the brilliant operating revenue growth of 2,111%. Overall, we'd say its growth is rather impressive. 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.

Can Atara Biotherapeutics Raise More Cash Easily?

Atara Biotherapeutics seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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. 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.

Atara Biotherapeutics' cash burn of US$95m is about the same as its market capitalisation of US$94m. Given just how high that expenditure is, relative to the company's market value, we think there's an elevated risk of funding distress, and we would be very nervous about holding the stock.

So, Should We Worry About Atara Biotherapeutics' Cash Burn?

On this analysis of Atara Biotherapeutics' cash burn, we think its revenue growth was reassuring, while its cash burn relative to its market cap has us a bit worried. Summing up, we think the Atara Biotherapeutics' cash burn is a risk, based on the factors we mentioned in this article. On another note, Atara Biotherapeutics has 6 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.