Atossa Genetics Inc (NASDAQ:ATOS) continues its loss-making streak, announcing negative earnings for its latest financial year ending. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that Atossa Genetics is spending more money than it earns, it will need to fund its expenses via external sources of capital. Atossa Genetics may need to come to market again, but the question is, when? Below, I’ve analysed the most recent financial data to help answer this question. View our latest analysis for Atossa Genetics
What is cash burn?
Atossa Genetics’s expenses are currently higher than the money it makes from its day-to-day operations, which means it is funding its overhead with equity capital a.k.a. its cash. With a negative operating cash flow of -$6.27M, Atossa Genetics is chipping away at its $2.73M cash reserves in order to run its business. The cash burn rate refers to the rate at which the company uses up its supply of cash over time. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. Unprofitable companies operating in the high-growth healthcare industry often face this problem, and Atossa Genetics is no exception. These companies face the trade-off between running the risk of depleting its cash reserves too fast, or the risk of falling behind competition on innovation and gaining market share by investing too slowly.
When will Atossa Genetics need to raise more cash?
Atossa Genetics has to pay its employees and other necessities such as rent and admin costs in order to keep its business running. These costs are called operational expenses, which is sometimes shortened to opex. In this calculation I’ve only included recurring sales, general and admin (SG&A) expenses, and R&D expenses occured within they year. In Atossa Genetics’s case, its opex fell by 1.33% last year, which may signal the company moving towards a more sustainable level of expenses. However, even with declining costs, the current level of cash is not enough to sustain Atossa Genetics’s operations and the company may need to come to market to raise more capital within the year. Even though this is analysis is fairly basic, and Atossa Genetics still can cut its overhead further, or raise debt capital instead of coming to equity markets, the analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
What this means for you:The risks involved in investing in loss-making Atossa Genetics means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. Now you know that even if the company was to continue to shrink its opex at this rate, it will not be able to sustain its operations given the current level of cash reserves. This suggests an opportunity to enter into the stock, potentially at an attractive price, should Atossa Genetics come to market to fund its growth. I admit this is a fairly basic analysis for ATOS’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Atossa Genetics to get a better picture of the company by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for ATOS’s future growth? Take a look at our free research report of analyst consensus for ATOS’s outlook.
- 2. Valuation: What is ATOS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ATOS is currently mispriced by the market.
- 3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.