U.S. markets closed
  • S&P 500

    4,228.48
    -55.26 (-1.29%)
     
  • Dow 30

    33,706.74
    -292.30 (-0.86%)
     
  • Nasdaq

    12,705.21
    -260.13 (-2.01%)
     
  • Russell 2000

    1,957.35
    -43.38 (-2.17%)
     
  • Crude Oil

    89.91
    -0.59 (-0.65%)
     
  • Gold

    1,760.30
    -10.90 (-0.62%)
     
  • Silver

    18.97
    -0.50 (-2.56%)
     
  • EUR/USD

    1.0039
    -0.0053 (-0.52%)
     
  • 10-Yr Bond

    2.9890
    +0.1090 (+3.78%)
     
  • GBP/USD

    1.1823
    -0.0109 (-0.92%)
     
  • USD/JPY

    136.9300
    +1.0680 (+0.79%)
     
  • BTC-USD

    21,217.66
    -819.51 (-3.72%)
     
  • CMC Crypto 200

    504.88
    -36.72 (-6.78%)
     
  • FTSE 100

    7,550.37
    +8.52 (+0.11%)
     
  • Nikkei 225

    28,930.33
    -11.81 (-0.04%)
     

We Think Dimerix (ASX:DXB) Needs To Drive Business Growth Carefully

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

So should Dimerix (ASX:DXB) shareholders be worried about its cash burn? For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Dimerix

Does Dimerix 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 December 2021, Dimerix had AU$16m in cash, and was debt-free. In the last year, its cash burn was AU$11m. That means it had a cash runway of around 17 months as of December 2021. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
debt-equity-history-analysis

How Is Dimerix's Cash Burn Changing Over Time?

In the last year, Dimerix did book revenue of AU$4.5m, but its revenue from operations was less, at just AU$744. Given how low that operating leverage is, we think it's too early to put much weight on the revenue growth, so we'll focus on how the cash burn is changing, instead. In fact, it ramped its spending strongly over the last year, increasing cash burn by 151%. That sort of spending growth rate can't continue for very long before it causes balance sheet weakness, generally speaking. Admittedly, we're a bit cautious of Dimerix due to its lack of significant operating revenues. So we'd generally prefer stocks from this list of stocks that have analysts forecasting growth.

Can Dimerix Raise More Cash Easily?

While Dimerix does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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).

Dimerix has a market capitalisation of AU$50m and burnt through AU$11m last year, which is 23% of the company's market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

How Risky Is Dimerix's Cash Burn Situation?

On this analysis of Dimerix's cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Summing up, we think the Dimerix's cash burn is a risk, based on the factors we mentioned in this article. On another note, Dimerix has 4 warning signs (and 2 which are significant) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here