When Will SPI Energy Co Ltd (NASDAQ:SPI) Need To Raise More Money?

As the $43.50M market cap SPI Energy Co Ltd (NASDAQ:SPI) released another year of negative earnings, investors may be on edge waiting for breakeven. Savvy investors should always reassess the situation of loss-making companies frequently, and keep informed about whether or not these businesses are in a strong cash position. This is because new equity from additional capital raising can thin out the value of current shareholders’ stake in the company. Given that SPI Energy is spending more money than it earns, it will need to fund its expenses via external sources of capital. SPI Energy 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. See our latest analysis for SPI Energy

What is cash burn?

Cash burn is when a loss-making company spends its equity to fund its expenses before making money from its day-to-day business. Currently, SPI Energy has $4.18M in cash holdings and producing negative cash flows from its day-to-day activities of -$47.03M. How fast SPI Energy runs down its cash supply over time is known as the cash burn rate. Companies with high cash burn rates can eventually turn into ashes, which makes it the biggest risk an investor in loss-making companies face. SPI Energy operates in the semiconductors industry, which has an average EPS of $92.92, meaning the majority of its peers are profitable. SPI Energy faces the trade-off between running the risk of depleting its cash reserves too fast, or risk falling behind its profitable competitors by investing too slowly.

When will SPI Energy need to raise more cash?

Operational expenses, or opex for short, are the bare minimum expenses for SPI Energy to continue its operations. In this case I've only accounted for sales, general and admin (SG&A) expenses, and basic R&D expenses incurred within this year. In the past year, opex (excluding one-offs) rose by 54.56%, which is rather substantial. This means that, if SPI Energy continues to grow its opex at this rate, given how much money it currently has in the bank, it will actually need to raise capital again within the next couple of months! This is also the case if SPI Energy maintains its opex level of $93.95M, without growth, going forward. Even though this is analysis is fairly basic, and SPI Energy still can cut its overhead in the near future, or open a new line of credit instead of issuing new equity shares, 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:

Are you a shareholder? In the context of your portfolio, you should always seek to diversify, especially if you have a relatively high exposure to SPI Energy. You now have a better understanding of the risks you may face holding onto the stock, since we know the company could potentially run into some issues in the next couple of months. In addition to this analysis, I suggest you take a look at their expected revenue growth to determine the timing of future profitability as well.

Are you a potential investor? The risks involved in investing in loss-making SPI Energy means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. The outcome of my analysis suggests that if the company maintains the rate of opex growth, it will run out of cash within the year. This suggests an opportunity to enter into the stock, potentially at an attractive price, should SPI Energy come to market to fund its growth.

An experienced management team on the helm increases our confidence in the business – take a look at who sits on SPI Energy’s board and the CEO’s back ground and experience here. If you believe you should cushion your portfolio with something less risky, scroll through my list of highly profitable companies to add to your portfolio..

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.