Aminex (LON:AEX) Is In A Good Position To Deliver On Growth Plans

By
Simply Wall St
Published
January 18, 2022
LSE:AEX
Source: Shutterstock

Just because a business does not make any money, does not mean that the stock will go down. 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Aminex (LON:AEX) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Aminex

Does Aminex Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2021, Aminex had US$491k in cash, and was debt-free. In the last year, its cash burn was US$393k. So it had a cash runway of approximately 15 months from June 2021. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
LSE:AEX Debt to Equity History January 18th 2022

How Is Aminex's Cash Burn Changing Over Time?

Although Aminex had revenue of US$170k in the last twelve months, its operating revenue was only US$170k in that time period. 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. From a cash flow perspective, it's great to see the company's cash burn dropped by 93% over the last year. That might not be promising when it comes to business development, but it's good for the companies cash preservation. Aminex makes us a little nervous due to its lack of substantial operating revenue. We prefer most of the stocks on this list of stocks that analysts expect to grow.

How Easily Can Aminex Raise Cash?

While we're comforted by the recent reduction evident from our analysis of Aminex's cash burn, it is still worth considering how easily the company could raise more funds, if it wanted to accelerate spending to drive 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.

Aminex has a market capitalisation of US$35m and burnt through US$393k last year, which is 1.1% of the company's market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

So, Should We Worry About Aminex's Cash Burn?

As you can probably tell by now, we're not too worried about Aminex's cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. Its weak point is its cash runway, but even that wasn't too bad! Considering all the factors discussed in this article, we're not overly concerned about the company's cash burn, although we do think shareholders should keep an eye on how it develops. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Aminex (of which 3 can't be ignored!) 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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