AML3D (ASX:AL3) Is In A Good Position To Deliver On Growth Plans

We can readily understand why investors are attracted to unprofitable companies. By way of example, AML3D (ASX:AL3) has seen its share price rise 110% over the last year, delighting many shareholders. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So notwithstanding the buoyant share price, we think it's well worth asking whether AML3D's cash burn is too risky. 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.

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How Long Is AML3D's Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at December 2024, AML3D had cash of AU$32m and such minimal debt that we can ignore it for the purposes of this analysis. Looking at the last year, the company burnt through AU$6.1m. So it had a cash runway of about 5.3 years from December 2024. Importantly, though, analysts think that AML3D will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

View our latest analysis for AML3D

How Well Is AML3D Growing?

One thing for shareholders to keep front in mind is that AML3D increased its cash burn by 369% in the last twelve months. But shareholders are no doubt taking some confidence from the rockstar revenue growth of 421% during that same year. Considering both these factors, we're not particularly excited by its growth profile. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can AML3D Raise Cash?

There's no doubt AML3D seems to be in a fairly good position, when it comes to managing its cash burn, but even if it's only hypothetical, it's always worth asking how easily it could raise more money to fund growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Since it has a market capitalisation of AU$172m, AML3D's AU$6.1m in cash burn equates to about 3.5% 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.

How Risky Is AML3D's Cash Burn Situation?

As you can probably tell by now, we're not too worried about AML3D's cash burn. For example, we think its revenue growth suggests that the company is on a good path. Although we do find its increasing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. On another note, AML3D has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Of course AML3D may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.