Dianthus Therapeutics (NASDAQ:DNTH) 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, 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 Dianthus Therapeutics (NASDAQ:DNTH) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Dianthus Therapeutics

When Might Dianthus Therapeutics Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at March 2024, Dianthus Therapeutics had cash of US$377m and no debt. Looking at the last year, the company burnt through US$42m. Therefore, from March 2024 it had 9.1 years of cash runway. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

How Well Is Dianthus Therapeutics Growing?

At first glance it's a bit worrying to see that Dianthus Therapeutics actually boosted its cash burn by 22%, year on year. And we must say we find it concerning that operating revenue dropped 47% over the same period. Considering both these metrics, we're a little concerned about how the company is developing. 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 Dianthus Therapeutics Raise Cash?

Dianthus Therapeutics 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. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Dianthus Therapeutics has a market capitalisation of US$847m and burnt through US$42m last year, which is 4.9% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Dianthus Therapeutics' Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Dianthus Therapeutics' cash runway was relatively promising. Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Dianthus Therapeutics (of which 1 can't be ignored!) you should know about.

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