We're Not Worried About Sera Prognostics' (NASDAQ:SERA) Cash Burn

We can readily understand why investors are attracted to unprofitable companies. For example, Sera Prognostics (NASDAQ:SERA) shareholders have done very well over the last year, with the share price soaring by 144%. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

In light of its strong share price run, we think now is a good time to investigate how risky Sera Prognostics' cash burn is. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Sera Prognostics

How Long Is Sera Prognostics' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2024, Sera Prognostics had US$53m in cash, and was debt-free. In the last year, its cash burn was US$18m. So it had a cash runway of about 2.9 years from March 2024. That's decent, giving the company a couple years to develop its business. The image below shows how its cash balance has been changing over the last few years.

How Is Sera Prognostics' Cash Burn Changing Over Time?

Whilst it's great to see that Sera Prognostics has already begun generating revenue from operations, last year it only produced US$206k, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 41% over the last year suggests some degree of prudence. 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 Sera Prognostics Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Sera Prognostics to raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Sera Prognostics has a market capitalisation of US$261m and burnt through US$18m last year, which is 7.0% 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 Sera Prognostics' Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Sera Prognostics is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. And even though its cash burn reduction wasn't quite as impressive, it was still a positive. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Sera Prognostics (of which 1 doesn't sit too well with us!) you should know about.

Of course Sera Prognostics 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com