We're Not Worried About Dyadic International's (NASDAQ:DYAI) Cash Burn
There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether Dyadic International (NASDAQ:DYAI) shareholders should 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for Dyadic International
Does Dyadic International 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, Dyadic International had US$20m in cash, and was debt-free. Importantly, its cash burn was US$11m over the trailing twelve months. Therefore, from December 2021 it had roughly 22 months of cash runway. Notably, however, the one analyst we see covering the stock thinks that Dyadic International will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Dyadic International Growing?
Dyadic International boosted investment sharply in the last year, with cash burn ramping by 72%. While that certainly gives us pause for thought, we take a lot of comfort in the strong annual revenue growth of 50%. On balance, we'd say the company is improving over time. 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 Dyadic International Raise Cash?
Dyadic International seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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).
Dyadic International's cash burn of US$11m is about 13% of its US$90m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.
Is Dyadic International's Cash Burn A Worry?
It may already be apparent to you that we're relatively comfortable with the way Dyadic International is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. There's no doubt that shareholders can take a lot of heart from the fact that at least one analyst is forecasting it will reach breakeven before too long. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 4 warning signs for Dyadic International that investors should know when investing in the stock.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)
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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.
