We Think Pieris Pharmaceuticals (NASDAQ:PIRS) Needs To Drive Business Growth Carefully

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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Pieris Pharmaceuticals (NASDAQ:PIRS) 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'. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Pieris Pharmaceuticals

How Long Is Pieris Pharmaceuticals' Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Pieris Pharmaceuticals last reported its balance sheet in June 2023, it had zero debt and cash worth US$55m. Importantly, its cash burn was US$46m over the trailing twelve months. That means it had a cash runway of around 14 months as of June 2023. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Pieris Pharmaceuticals Growing?

We reckon the fact that Pieris Pharmaceuticals managed to shrink its cash burn by 29% over the last year is rather encouraging. On top of that, operating revenue was up 22%, making for a heartening combination On balance, we'd say the company is improving over time. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Pieris Pharmaceuticals Raise Cash?

While Pieris Pharmaceuticals seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. 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.

Since it has a market capitalisation of US$24m, Pieris Pharmaceuticals' US$46m in cash burn equates to about 195% of its market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

Is Pieris Pharmaceuticals' Cash Burn A Worry?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Pieris Pharmaceuticals' revenue growth was relatively promising. Summing up, we think the Pieris Pharmaceuticals' cash burn is a risk, based on the factors we mentioned in this article. On another note, we conducted an in-depth investigation of the company, and identified 6 warning signs for Pieris Pharmaceuticals (3 can't be ignored!) that you should be aware of before investing here.

Of course Pieris Pharmaceuticals 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.