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

There's no doubt that money can be made by owning shares of unprofitable businesses. 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?

Given this risk, we thought we'd take a look at whether Atara Biotherapeutics (NASDAQ:ATRA) shareholders should 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.

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How Long Is Atara Biotherapeutics' 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. As at December 2024, Atara Biotherapeutics had cash of US$42m and no debt. Importantly, its cash burn was US$69m over the trailing twelve months. So it had a cash runway of approximately 7 months from December 2024. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.

See our latest analysis for Atara Biotherapeutics

How Well Is Atara Biotherapeutics Growing?

Happily, Atara Biotherapeutics is travelling in the right direction when it comes to its cash burn, which is down 64% over the last year. But its revenue is better yet, flying higher than Elon Musk and his rocket, with growth of 1,404% in the last year. Overall, we'd say its growth is rather impressive. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For Atara Biotherapeutics To Raise More Cash For Growth?

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. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Atara Biotherapeutics' cash burn of US$69m is about 157% of its US$44m market capitalisation. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

Is Atara Biotherapeutics' Cash Burn A Worry?

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. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Atara Biotherapeutics (2 are significant!) that you should be aware of before investing here.

Of course Atara Biotherapeutics may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.