As the US$562m market cap Autolus Therapeutics plc ( NASDAQ:AUTL ) released another year of negative earnings, investors may be on edge waiting for breakeven. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. Selling new shares may dilute the value of existing shares on issue, and since Autolus Therapeutics is currently burning more cash than it is making, it’s likely the business will need funding for future growth. Autolus Therapeutics may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question.
What is cash burn?
With a negative free cash flow of -US$133.7m, Autolus Therapeutics is chipping away at its US$266m cash reserves in order to run its business. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Furthermore, it is not uncommon to find loss-makers in an industry such as biotech. The industry is highly competitive, with companies racing to innovate at the risk of burning through their cash too fast.
When will Autolus Therapeutics need to raise more cash?
One way to measure the cost to Autolus Therapeutics of keeping the business running, is by using free cash flow (which I define as cash flow from operations minus fixed capital investment).
Free cash outflows declined by 64% over the past year, which could be an indication of Autolus Therapeutics putting the brakes on ramping up high growth. Though, if the company kept its cash burn level at -US$133.7m, it may not need to raise capital for another 2 years. Although this is a relatively simplistic calculation, and Autolus Therapeutics may continue to reduce its costs further or open a new line of credit instead of issuing new shares, this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
Loss-making companies are a risky play, even those that are reducing their cash burn over time. Though, this shouldn’t discourage you from considering entering the stock in the future. The cash burn analysis result indicates a cash constraint for the company, due to its current level of cash reserves. An opportunity may exist for you to enter into the stock at an attractive price, should Autolus Therapeutics come to market to fund its operations. I admit this is a fairly basic analysis for AUTL's financial health. Other important fundamentals need to be considered as well. You should continue to research Autolus Therapeutics to get a more holistic view of the company by looking at:
- Future Outlook : What are well-informed industry analysts predicting for AUTL’s future growth? Take a look at our free research report of analyst consensus for AUTL’s outlook.
- Management Team : An experienced management team on the helm increases our confidence in the business – take a look at who sits on Autolus Therapeutics’s board and the CEO’s back ground .
- Other High-Performing Stocks : If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here .
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2019. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.
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