Here's Why We're Not Too Worried About Atomera's (NASDAQ:ATOM) Cash Burn Situation

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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, the natural question for Atomera (NASDAQ:ATOM) shareholders is whether they should be concerned by its rate of 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Atomera

Does Atomera Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2022, Atomera had US$24m in cash, and was debt-free. Importantly, its cash burn was US$13m over the trailing twelve months. Therefore, from March 2022 it had roughly 23 months of cash runway. 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.

How Is Atomera's Cash Burn Changing Over Time?

Whilst it's great to see that Atomera has already begun generating revenue from operations, last year it only produced US$375k, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. It seems likely that the business is content with its current spending, as the cash burn rate stayed steady over the last twelve months. 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 Atomera Raise Cash?

Since its cash burn is increasing (albeit only slightly), Atomera shareholders should still be mindful of the possibility it will require more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.

Atomera's cash burn of US$13m is about 4.7% of its US$273m market capitalisation. 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.

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

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Atomera's cash burn relative to its market cap was relatively promising. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Taking a deeper dive, we've spotted 4 warning signs for Atomera you should be aware of, and 1 of them can't be ignored.

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)

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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.