We Think MicroVision (NASDAQ:MVIS) Needs To Drive Business Growth Carefully

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you’d have done very well indeed. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for MicroVision (NASDAQ:MVIS) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; 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 MicroVision

How Long Is MicroVision’s Cash Runway?

A company’s cash runway is calculated by dividing its cash hoard by its cash burn. In June 2023, MicroVision had US$94m in cash, and was debt-free. In the last year, its cash burn was US$52m. That means it had a cash runway of around 22 months as of June 2023. 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. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis

debt-equity-history-analysis

How Well Is MicroVision Growing?

At first glance it’s a bit worrying to see that MicroVision actually boosted its cash burn by 29%, year on year. And we must say we find it concerning that operating revenue dropped 43% over the same period. Considering both these metrics, we’re a little concerned about how the company is developing. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For MicroVision To Raise More Cash For Growth?

Even though it seems like MicroVision is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. 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. We can compare a company’s cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year’s operations.

Since it has a market capitalisation of US$400m, MicroVision’s US$52m in cash burn equates to about 13% of its market value. Given that situation, it’s fair to say the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.

Is MicroVision’s Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought MicroVision’s cash runway was relatively promising. We don’t think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Readers need to have a sound understanding of business risks before investing in a stock, and we’ve spotted 3 warning signs for MicroVision that potential shareholders should take into account before putting money into a stock.

Of course MicroVision 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.

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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.

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