We are not worried about Aerpio Pharmaceuticals’ loss of cash (NASDAQ: ARPO)
Even when a business loses money, it is possible for shareholders to make money if they buy a good business at the right price. Indeed, Aerpio Pharmaceuticals (NASDAQ: ARPO) the stock has risen 215% over the past year, delivering solid gains to shareholders. Still, only an idiot would ignore the risk that a loss-making company burns its cash too quickly.
In light of the sharp rise in its stock price, we believe the time has come to consider how risky Aerpio Pharmaceuticals’ cash consumption is. For the purposes of this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow). The first step is to compare its cash consumption with its cash reserves, to give us its “cash flow track”.
When could Aerpio Pharmaceuticals run out of money?
A company’s cash flow track is calculated by dividing its cash reserve by its cash consumption. As of December 2020, Aerpio Pharmaceuticals had US $ 43 million in cash and debt so minimal that we can ignore it for the purposes of this analysis. In the past year, its cash consumption amounted to US $ 5.4 million. This means that it had a cash flow track of around 7.9 years as of December 2020. However, analysts notably believe that Aerpio Pharmaceuticals will break even (at the level of free cash flow) before that date. In this case, he may never reach the end of his cash trail. Pictured below, you can see how his cash holdings have changed over time.
How does Aerpio Pharmaceuticals silver consumption change over time?
In our opinion, Aerpio Pharmaceuticals is not yet generating significant operating income, as it has only brought in US $ 15 million in the past twelve months. As a result, we think it’s a bit early to focus on revenue growth, so we’ll limit ourselves to looking at how cash consumption has changed over time. The 78% reduction in its cash consumption over the past twelve months may be good for protecting the balance sheet, but it hardly indicates imminent growth. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes perfect sense to examine our analyst forecasts for the company.
How easily can Aerpio Pharmaceuticals raise funds?
While we’re reassured by the recent obvious reduction in our analysis of Aerpio Pharmaceuticals’ cash consumption, it’s still worth considering how easily the company could raise more funds if it wanted to accelerate spending to drive growth. . Generally speaking, a listed company can raise new liquidity by issuing shares or going into debt. Many companies end up issuing new shares to finance their future growth. By comparing a company’s annual cash consumption to its total market capitalization, we can roughly estimate how many shares it would need to issue to keep the business running for another year (at the same burn rate).
Aerpio Pharmaceuticals’ cash consumption of US $ 5.4 million represents approximately 7.1% of its market capitalization of US $ 77 million. Given that this is a rather small percentage, it would probably be very easy for the company to finance the growth of another year by issuing new shares to investors, or even taking out a loan.
Is Aerpio Pharmaceuticals silver consumption a concern?
As you can probably see by now, we’re not too worried about Aerpio Pharmaceuticals’ silver consumption. For example, we think his cash flow trail suggests the business is on the right track. But it’s fair to say that its consumption of cash relative to its market cap was also very reassuring. There is no doubt that shareholders can be happy that analysts expect it to break even before too long. Considering all the factors in this report, we are not at all worried about its consumption of cash, as the business appears well capitalized to spend as needed. On another note, we conducted a thorough investigation of the company and identified 5 warning signs for Aerpio Pharmaceuticals (1 makes us a little uncomfortable!) Which you should be aware of before investing here.
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