MYCELX Technologies (LON:MYX) Is In A Good Position To Deliver On Growth Plans
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
So, the natural question for MYCELX Technologies (LON:MYX) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
View our latest analysis for MYCELX Technologies
Does MYCELX Technologies Have A Long Cash Runway?
A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In June 2023, MYCELX Technologies had US$1.4m in cash, and was debt-free. Looking at the last year, the company burnt through US$1.4m. So it had a cash runway of approximately 12 months from June 2023. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.
How Well Is MYCELX Technologies Growing?
Happily, MYCELX Technologies is travelling in the right direction when it comes to its cash burn, which is down 71% over the last year. And revenue is up 48% in that same period; also a good sign. Overall, we'd say its growth is rather impressive. 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 MYCELX Technologies Raise Cash?
Even though it seems like MYCELX Technologies is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Since it has a market capitalisation of US$21m, MYCELX Technologies' US$1.4m in cash burn equates to about 6.7% of its 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.
So, Should We Worry About MYCELX Technologies' Cash Burn?
As you can probably tell by now, we're not too worried about MYCELX Technologies' cash burn. For example, we think its revenue growth suggests that the company is on a good path. While its cash runway wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. On another note, MYCELX Technologies has 4 warning signs (and 2 which don't sit too well with us) we think you should know about.
If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.
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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.
