Coya Therapeutics (NASDAQ:COYA) Is In A Good Position To Deliver On Growth Plans

Just because a business does not make any money, does not mean that the stock will go down. For example, Coya Therapeutics (NASDAQ:COYA) shareholders have done very well over the last year, with the share price soaring by 122%. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So notwithstanding the buoyant share price, we think it's well worth asking whether Coya Therapeutics' cash burn is too risky. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Coya Therapeutics

When Might Coya Therapeutics Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2023, Coya Therapeutics had cash of US$33m and no debt. Importantly, its cash burn was US$12m over the trailing twelve months. That means it had a cash runway of about 2.8 years as of December 2023. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

How Is Coya Therapeutics' Cash Burn Changing Over Time?

In our view, Coya Therapeutics doesn't yet produce significant amounts of operating revenue, since it reported just US$6.0m in the last twelve months. 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. Over the last year its cash burn actually increased by a very significant 51%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Coya Therapeutics Raise Cash?

While Coya Therapeutics 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. 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.

Coya Therapeutics has a market capitalisation of US$141m and burnt through US$12m last year, which is 8.3% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is Coya Therapeutics' Cash Burn Situation?

As you can probably tell by now, we're not too worried about Coya Therapeutics' cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, Coya Therapeutics has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course Coya Therapeutics 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 that insiders are buying.

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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.