Is Pulmatrix (NASDAQ:PULM) In A Good Position To Deliver On Growth Plans?

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. 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 Pulmatrix (NASDAQ:PULM) 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Pulmatrix

How Long Is Pulmatrix's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2021, Pulmatrix had cash of US$57m and no debt. Looking at the last year, the company burnt through US$21m. Therefore, from June 2021 it had 2.8 years of cash runway. Notably, one analyst forecasts that Pulmatrix will break even (at a free cash flow level) in about 3 years. That means it doesn't have a great deal of breathing room, but it shouldn't really need more cash, considering that cash burn should be continually reducing. You can see how its cash balance has changed over time in the image below.

How Well Is Pulmatrix Growing?

Pulmatrix boosted investment sharply in the last year, with cash burn ramping by 62%. While operating revenue was up over the same period, the 7.1% gain gives us scant comfort. Considering both these factors, we're not particularly excited by its growth profile. 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.

Can Pulmatrix Raise More Cash Easily?

Pulmatrix 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. 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.

Pulmatrix's cash burn of US$21m is about 47% of its US$44m market capitalisation. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.

How Risky Is Pulmatrix's Cash Burn Situation?

On this analysis of Pulmatrix's cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. One real positive is that at least one analyst is forecasting that the company will reach breakeven. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Pulmatrix (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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.

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