Stock Analysis

We Think Atreca (NASDAQ:BCEL) Can Afford To Drive Business Growth

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NasdaqGS:BCEL
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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 the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So, the natural question for Atreca (NASDAQ:BCEL) shareholders is whether they should be concerned by its rate of 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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When Might Atreca 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. Atreca has such a small amount of debt that we'll set it aside, and focus on the US$212m in cash it held at March 2021. In the last year, its cash burn was US$82m. So it had a cash runway of about 2.6 years from March 2021. Notably, analysts forecast that Atreca will break even (at a free cash flow level) in about 4 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
NasdaqGS:BCEL Debt to Equity History May 14th 2021

How Is Atreca's Cash Burn Changing Over Time?

Atreca didn't record any revenue over the last year, indicating that it's an early stage company still developing its 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. With the cash burn rate up 22% in the last year, it seems that the company is ratcheting up investment in the business over time. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. 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 Hard Would It Be For Atreca To Raise More Cash For Growth?

While Atreca does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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.

Atreca has a market capitalisation of US$329m and burnt through US$82m last year, which is 25% 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.

Is Atreca's Cash Burn A Worry?

On this analysis of Atreca's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. One real positive is that analysts are forecasting that the company will reach breakeven. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Atreca's situation. On another note, Atreca has 4 warning signs (and 1 which is significant) 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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What are the risks and opportunities for Atreca?

Atreca, Inc., a clinical-stage biopharmaceutical company, discovers and develops antibody-based immunotherapeutics to treat a range of solid tumor types.

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Risks

  • Has less than 1 year of cash runway

  • Makes less than USD$1m in revenue ($0)

  • Does not have a meaningful market cap ($61M)

  • Shareholders have been diluted in the past year

  • Volatile share price over the past 3 months

  • Currently unprofitable and not forecast to become profitable over the next 3 years

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