Are BrainChip shares finally cheap enough to buy?

When will BrainChip be cheap enough to buy?

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Well, it's now August 2023, and BrainChip Holdings Ltd (ASX: BRN) shares continue to get cheaper and cheaper. This is an All Ords share that was going for $1.11 a share a year ago, and 75 cents each at the start of this year. 

Yet today, BrainChip is sitting at just 37 cents a share, down more than 50% in 2023 alone, and down 66.67% from this time last year. Just take a look below for some visual context:

At the current BrainChip share price, this artificial intelligence (AI) share has a market capitalisation of just over $656 million.

With a decline in value as pronounced as BrainChip shares have experienced over the past few months and year, many investors might be wondering if this company is finally in the buy zone today. So let's discuss that proposition.

Back in April, we discussed this very same question. Back then, BrainChip shares were trading around a similar valuation to what they are today. But at the time, I argued that Braichip's second-half revenues for 2022 of US$250,000 were well below what I would expect for a company with a ~$650 million market capitalisation.

As such, I came to a position where I would not touch Branchip shares until at least the company drastically improved that metric, amongst others.

I was also not encouraged by the large number of sell transactions that were being conducted by BrainChip's management. If management is selling their shares in high volumes, it is difficult to make a case for investors to be buying off them.

So what's changed since then?

Are BrainChip shares finally a buy in August 2023?

Well, not enough. BrainChip recently released its latest quarterly cash flow update, covering the three months to 30 June 2023. Things did improve slightly here. The company announced a cash balance of US$21.8 million as of 30 June, up from US$17.7 million in the prior quarter.

Cash outflows also decreased, falling from $6.3 million to $4.1 million.

But those metrics alone aren't enough for me to justify a market capitalisation of $656 million. Let alone a price-to-book (P/B) ratio of over 18. That means that BrainChip is currently trading at 18 times the total value of the company's assets.

Further, Brainchip seems to be having some difficulties with its new Akida 2.0 platform. As my Fool colleague Mitchell covered last month, "uncertainty around the company's next iteration could be to blame for the demolition of the BrainChip share price in June".

It's probably for these reasons that BrainChip shares are now amongst the most short-sold on the ASX. If I had to choose, I would probably rather short BrainChip shares today than buy them. I'm no short seller though, so I'm just staying well clear of this ASX AI share for the foreseeable future.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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