Yeast. It's not just for dinner anymore -- Amyris uses it to create biofuels. Image source: Getty Images.

What happened

Tiny California-based Amyris, Inc. (NASDAQ:AMRS) has a dream: transforming plant-based sugars into biofuel for use as an alternative fuel instead of petroleum. It's a popular idea, and helped Amyris to produce 61% growth in product sales in Q3 2016. Unfortunately, it wasn't a good enough idea to allow Amyris to actually earn a profit.

Instead, Amyris reported losses of $0.08 per share yesterday, which was $0.02 worse than what analysts had been expecting. This sparked a sell-off on Thursday that sent Amyris stock down as much as 24%. As of 3:30 p.m. EDT, the stock was still selling for 22.3% below its pre-earnings price.

So what

Amyris may lack profits, but it's got plenty of revenue, so that's what the company chose to talk about in Wednesday's earnings report. As the company boasted, the $26.5 million in revenues it recorded in the quarter was a "record" for the company. What's more, while sales revenues ($6.8 million of that total) were up 61%, the $26.5 million total revenue number increased by more than 200%, thanks to greater "grants and collaborations revenue."

At the same time, management succeeded in cutting its operating costs 4% year over year, to $38.6 million. That wasn't enough of a cut to turn a profit, but it was enough to allow Amyris to eke out a small trickle of free cash flow: $0.7 million for the quarter.

Now what

The company has been historically unprofitable and free cash flow negative, and Q3's free cash flow gave us all a nice surprise. It doesn't appear, however, to have made investors any more enthusiastic about the GAAP earnings miss.

I'd like to be able to say that's a "mistake," and that Amyris is finally on track to a profitable future. The truth, however, is that almost anything can happen in a single quarter, and free cash flow is almost always a lumpier number than GAAP earnings. If and when Amyris starts stringing a few profitable -- or even free-cash-flow profitable -- quarters together in a row, the stock might be worth another look. For now, though, it still appears too volatile and early stage to be considered anything more than a very speculative investment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.