There is no doubt that it is possible to make money by owning shares of unprofitable companies. For example, biotechnology and mining exploration companies often lose money for years before succeeding with a new treatment or mineral discovery. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.
So should Advent Technologies Holdings (NASDAQ:ADN) Are shareholders worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable business spends money to finance its growth; its negative free cash flow. We will start by comparing its cash consumption with its cash reserves in order to calculate its cash trail.
When might Advent Technologies Holdings run out of money?
A cash trail is defined as the length of time it would take a business to run out of cash if it continued to spend at its current rate of cash consumption. As of June 2022, Advent Technologies Holdings had $47 million in cash and no debt. Importantly, its cash burn was US$54 million over the last twelve months. Therefore, as of June 2022, he had around 10 months of cash. To be frank, this kind of short track puts us on edge, as it indicates that the company needs to significantly reduce its cash burn, or raise funds imminently. Below you can see how its liquidity has changed over time.
How is Advent Technologies Holdings growing?
Notably, Advent Technologies Holdings has actually increased its cash burn very hard and fast over the past year, by 165%, which signifies a significant investment in the business. Of course, the truly skyrocketing revenue growth of 162% over this period may well justify the growth expenditure. Given these two factors, we’re not particularly excited about its growth profile. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can Advent Technologies Holdings easily raise more cash?
Given Advent Technologies Holdings’ cash burn trajectory, many investors will already be thinking about how it might raise more cash in the future. Issuing new shares or going into debt are the most common ways for a listed company to raise more funds for its business. One of the main advantages of publicly traded companies is that they can sell shares to investors to raise funds and finance their growth. By looking at a company’s cash burn relative to its market cap, we get insight into how much of a shareholder base would be diluted if the company needed to raise enough cash to cover a company’s cash burn. another year.
Advent Technologies Holdings’ cash burn of US$54 million is approximately 52% of its market capitalization of US$105 million. These are high expenses relative to the value of the entire company, so if it has to issue stock to fund further growth, it could end up hurting shareholder returns significantly (through significant dilution).
Is Advent Technologies Holdings’ cash burn a concern?
Although its growing cash burn makes us a little nervous, we are bound to mention that we thought Advent Technologies Holdings’ revenue growth was relatively promising. Considering all the metrics mentioned in this report, we believe his cash burn is quite risky, and if we held stocks, we would be watching like a hawk for any deterioration. On another note, Advent Technologies Holdings has 3 warning signs (and 2 that should not be overlooked) we think you should know.
Sure, you might find a fantastic investment by looking elsewhere. So take a look at this free list of interesting companies, and this list of growth stocks (according to analyst forecasts)
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