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We talk about investing like it's about numbers and money and building wealth. But investing is really about business, and business is about people. Have you met a people lately? They're unpredictable. They make poor decisions. They have biases. They can be terrible managers of people and processes.

The management team at AVITA Medical is an (unfortunately) brilliant example.

The business isn't in poor shape. Revenue has grown at least 30% each year since 2020. Gross margin has exceeded 80% throughout that span. It has meaningful market opportunities across burns, wounds, and stable vitiligo. It could expand internationally and face relatively little competition. These are all attributes most emerging growth companies would do unspeakable things to achieve – and AVITA Medical has all of them.

If the business had a multi-year cash runway and strategic direction, then this could be a really great future compounder. Unfortunately, the business doesn't have a multi-year cash runway. It ended March 2025 with $25 million in cash and burned $10 million in the first quarter.

How did the business possibly screw this up? Management is running the business as if it's growing at 60% per year, has a large cash position, and is on the cusp of becoming cash flow positive. None of those things are true.

Yet, management once again reiterated full-year 2025 revenue guidance with a midpoint of $103 million. To achieve that, AVITA Medical would need to average quarterly revenue of $28.1 million for the final three periods of the year. It has never cracked $20 million in a single three-month period.

The business could succeed if the cash runway and expectations were responsibly managed, but AVITA Medical's survival is in doubt. Limping away with an exit near $7 per share sucks, but the current performance trajectory and stubbornness of management suggests the situation could very quickly deteriorate into something much, much worse.

The Trade

I sold 104.926 of AVITA Medical at $7.45 per share on May 9, 2025.

This position was closed, resulting in a loss of -21.8% and -$219. The S&P 500 lost 3.5% while the position was active, resulting in a net performance of -18.3% / -$183 compared to passive investing.

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Margin of Safety & Allocation

AVITA Medical is considered a Growth (Speculative) position. The estimated fair valuation based on my current model is below:

• Market close May 8: $9.33 per share
• Modeled Fair Valuation: $6.41 per share
• Allocation Range: Up to 5%

AVITA Medical reported 26.435 million shares outstanding as of May 5, 2025. The modeled fair valuation above assumes 35.158 million shares outstanding, which is equivalent to 33% dilution.

Further Reading

• February 2025 research note analyzing full-year 2025 expectations