We Think Atomera (NASDAQ:ATOM) Can Afford To Drive Business Growth

Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. By way of example, Atomera (NASDAQ:ATOM) has seen its share price rise 202% over the last year, delighting many shareholders. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given its strong share price performance, we think it's worthwhile for Atomera shareholders to consider whether its cash burn is concerning. 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

Check out our latest analysis for Atomera

Does Atomera Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Atomera last reported its balance sheet in September 2021, it had zero debt and cash worth US$32m. Importantly, its cash burn was US$13m over the trailing twelve months. Therefore, from September 2021 it had 2.5 years of cash runway. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

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$400k, 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. Over the last year its cash burn actually increased by 13%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Atomera Raise More Cash Easily?

While Atomera does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. 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).

Atomera's cash burn of US$13m is about 1.9% of its US$651m market capitalisation. 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.

Is Atomera's Cash Burn A Worry?

It may already be apparent to you that we're relatively comfortable with the way Atomera is burning through its cash. In particular, we think its cash burn relative to its market cap stands out as evidence that the company is well on top of its spending. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. 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, we conducted an in-depth investigation of the company, and identified 5 warning signs for Atomera (1 shouldn't be ignored!) that you should be aware of before investing here.

Of course Atomera 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 that insiders are buying.

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.

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