Despite the risk associated with investing in unprofitable companies, there are instances where shareholders can still make significant gains. One such example is Iris Energy (NASDAQ:IREN), whose stock has surged by an impressive 118% over the past year. This remarkable performance begs the question: how sustainable is Iris Energy’s cash burn?
To understand the level of risk, it is crucial to examine the company’s cash runway, which is determined by dividing its cash reserves by its cash burn. As of June 2023, Iris Energy had zero debt and held $69 million in cash. Meanwhile, its cash burn over the trailing twelve months amounted to $110 million, translating to a cash runway of approximately 8 months.
Although the figures may raise concerns, analysts predict that Iris Energy will achieve breakeven in about 18 months. This positive forecast suggests that the company has a plan to curb its cash burn and potentially raise additional funds if needed.
Moreover, Iris Energy has demonstrated encouraging signs of growth. Its cash burn has decreased by 60% in the past year, accompanied by a notable 28% boost in revenue. These factors indicate that the company is heading in the right direction.
While Iris Energy appears to be on a promising trajectory, the ease with which it can raise additional capital remains a critical consideration for potential investors. Issuing new shares or taking on debt are common avenues for listed companies to raise funds. Given that Iris Energy’s cash burn represents approximately 34% of its $328 million market capitalization, the potential dilution resulting from share issuance is a significant concern.
In conclusion, although Iris Energy’s cash runway presents some risks, its ability to reduce cash burn and achieve breakeven within a reasonable timeframe is reassuring. While cash-burning companies are inherently more precarious, the overall analysis suggests that Iris Energy is managing its cash burn effectively. However, it’s worth noting that there are a few warning signs associated with the company, and investors should conduct comprehensive research before making any investment decisions.
Q: How has Iris Energy’s stock performance been over the past year?
A: Iris Energy’s stock has surged by 118% over the past year.
Q: What is the company’s cash runway?
A: Iris Energy had approximately 8 months of cash runway as of June 2023.
Q: Has Iris Energy demonstrated any signs of growth?
A: Yes, Iris Energy has shown a 60% decrease in cash burn and a 28% boost in revenue in the past year.
Q: When is Iris Energy predicted to achieve breakeven?
A: Analysts predict that Iris Energy will achieve breakeven in about 18 months.
Q: What is the potential concern regarding Iris Energy raising additional capital?
A: The potential dilution resulting from share issuance is a significant concern due to Iris Energy’s cash burn representing approximately 34% of its market capitalization.
– Cash Burn: The rate at which a company depletes its cash reserves to fund operations.
– Cash Runway: The length of time a company can continue to operate based on its current cash reserves and cash burn rate.
– Breakeven: The point at which a company’s revenue equals its expenses, resulting in neither profits nor losses.