We're Keeping An Eye On Rapid Micro Biosystems' (NASDAQ:RPID) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. Indeed, Rapid Micro Biosystems (NASDAQ:RPID) stock is up 176% in the last year, providing strong gains for shareholders. 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 Rapid Micro Biosystems' cash burn is too risky. 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.

Our free stock report includes 2 warning signs investors should be aware of before investing in Rapid Micro Biosystems. Read for free now.

How Long Is Rapid Micro Biosystems' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at December 2024, Rapid Micro Biosystems had cash of US$51m and no debt. 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 December 2024. 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. The image below shows how its cash balance has been changing over the last few years.

Check out our latest analysis for Rapid Micro Biosystems

How Well Is Rapid Micro Biosystems Growing?

On balance, we think it's mildly positive that Rapid Micro Biosystems trimmed its cash burn by 3.0% over the last twelve months. And considering that its operating revenue gained 25% during that period, that's great to see. 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. 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 Rapid Micro Biosystems Raise Cash?

Even though it seems like Rapid Micro Biosystems is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive 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.

Rapid Micro Biosystems has a market capitalisation of US$104m and burnt through US$46m last year, which is 44% of the company's market value. 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 Rapid Micro Biosystems' Cash Burn Situation?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Rapid Micro Biosystems' revenue growth was relatively promising. Summing up, we think the Rapid Micro Biosystems' cash burn is a risk, based on the factors we mentioned in this article. On another note, Rapid Micro Biosystems has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

Of course Rapid Micro Biosystems 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 with high insider ownership.

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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.