Amyris, Inc. (AMRS) engages in the provision of bioscience solutions. It offers its products to health and wellness, clean beauty, and flavor and fragrance markets.
Shares of the synthetic biotechnology company, which operates in the clean health and beauty markets have losses of about 10% in 2021 and about 60% in the past three months. I am bearish on AMRS stock.
There are at least five key reasons to be bearish, and all of them are related to the stock’s fundamentals. Amyris stock could appear soon in a stock screener list searching for penny stocks if this sell-off continues.
Causes for Concern
The five key points that make me worrisome about Amyris are presented below.
First, AMRS stock earnings have a weak trend and are negative. More specifically, in the past eight quarters, EPS was negative in seven quarters, and only back in August 2021 did the company manage to report EPS of $0.05, beating the estimate of -$0.13.
As of 2016, the company has been unprofitable. What is even worse is that net losses have widened. In 2019 the net loss reported was $235.39 million, and in 2020, the net loss widened to $315.16 million. For the last 12 months, the loss is over $418 million.
Second, AMRS has negative shareholders’ equity. As of the most recent report, total equity was -$84.2 million. The company has accumulated losses that have significantly deteriorated retained earnings and equity. Negative shareholders’ equity is a red flag for investors as a measure of net worth because it means that the company’s liabilities exceed its assets, and the company is in financial distress.
Third, another key ratio that signals liquidity problems is the current ratio of 0.6x that Amyris reports on its official website. In addition, the quick ratio is 0.4x. Both these ratios should be above 1.0 to reflect a strong liquidity position. This is not the case for Amyris.
Fourth, the company has a negative operating margin. For 2020, the operating margin was -71.3%. As of 2016, it has been consistently negative. A company that is unable to profit from its core operations could face many challenges and risks to report overall profitability.
The fifth reason is that considering all the above factors, it is not a surprise that there is a cash burn problem. Amyris has a negative free cash flow trend for 2016-2020, but interestingly enough, for Q1 2021, it managed to report a positive figure of $106.2 million. In Q2 and Q3, negative free cash flow was reported, with the cumulative figure for the first nine months of 2021 being negative.
Third Quarter 2021 Financial Results: A Positive Surprise?
Amyris reported in its Q3 2021 financial results that “record Q3 underlying revenue of $48 million increased 40% continuing the year-over-year and sequential growth trajectory. Record consumer revenue of $23 million increased 89% versus Q3 2020”.
On the negative side, GAAP net loss reported was $308 million or $1.07 per share compared to a loss of $273.2 million or $1.44 per share in the first nine months of 2020.
Two more negative factors that weigh in the stock price are supply chain challenges and share dilution. Amyris announced it had priced $600 million aggregate principal amount of 1.50% convertible senior notes due 2026. The size of the offering has increased from the previously announced $400 million.
Wall Street’s Take
Turning to Wall Street, Amyris has a Strong Buy consensus based on three Buys ratings. The average Amyris price target of $21.33 represents 296.5% upside potential.
Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.
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