Companies Like Iris Energy (NASDAQ:IREN) Are In A Position To Invest In Growth

We can readily understand why investors are attracted to unprofitable companies. For example, Iris Energy (NASDAQ:IREN) shareholders have done very well over the last year, with the share price soaring by 299%. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So notwithstanding the buoyant share price, we think it's well worth asking whether Iris Energy's cash burn is too risky. 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. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for Iris Energy

When Might Iris Energy Run Out Of Money?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. When Iris Energy last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth US$411m. In the last year, its cash burn was US$427m. Therefore, from June 2024 it had roughly 12 months of cash runway. Importantly, analysts think that Iris Energy will reach cashflow breakeven in around 17 months. So there's a very good chance it won't need more cash, when you consider the burn rate will be reducing in that period. The image below shows how its cash balance has been changing over the last few years.

How Well Is Iris Energy Growing?

One thing for shareholders to keep front in mind is that Iris Energy increased its cash burn by 288% in the last twelve months. Of course, the truly verdant revenue growth of 148% in that time may well justify the growth spend. Considering both these factors, we're not particularly excited by its growth profile. 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.

How Easily Can Iris Energy Raise Cash?

Given the trajectory of Iris Energy's cash burn, many investors will already be thinking about how it might raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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).

Iris Energy has a market capitalisation of US$2.3b and burnt through US$427m last year, which is 18% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About Iris Energy's Cash Burn?

On this analysis of Iris Energy's cash burn, we think its revenue growth was reassuring, while its increasing cash burn has us a bit worried. It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. On another note, we conducted an in-depth investigation of the company, and identified 3 warning signs for Iris Energy (2 don't sit too well with us!) that you should be aware of before investing here.

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.