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What happened

After a meteoric 220% rise from August to mid-October, shares of Amyris (NASDAQ:AMRS) fell 16.8% in November. A flurry of announced deals and partnership agreements weren't enough to overcome the reality of the company's financial performance.

So what

The company reported third-quarter 2016 earnings on Nov. 2. At first glance, there was plenty for investors to like, starting with record quarterly revenue of $26.5 million. Improved cash inflows and continued cost-cutting measures lifted the company's net profit margin and operating profit margin for the third consecutive quarter. Throw in a string of potentially lucrative deals for specialty (flavor, fragrance, and nutritional) and bulk (industrial polymers) ingredients that will force the company's only production facility to operate at full tilt throughout 2017 -- even skipping its annual January shutdown -- and the future looks bright.

Although Amyris really does appear to be turning a corner, it continues to struggle where it counts: product revenue. More specifically, profitable product revenue. The company's $26.5 million in third-quarter 2016 revenue includes $19.7 million in collaboration revenue -- most from a one-time payment from a single partner. While product revenue has grown 54% in the first nine months of 2016 compared to the same period last year, the cost of goods sold still far exceeds the top line figure. Year-to-date product revenue stands at $14.9 million, but the company spent $33.9 million to generate it.

AMRS Chart

AMRS data by YCharts

Investors are hoping that increased throughput at the company's facility will lower per-unit production costs. Management claims that current production deals will underpin $200 million in revenue in 2017. That would mark significant growth from the $34 million notched in 2015 and the $45 million in revenue generated year to date. However, Amyris has an awful track record of meeting its own guidance and usually misses by a wide margin.

Now what

Amyris appears to be finally finding its groove, but investors optimistic about the company's future should consider the severe red flags littering its balance sheet and how that will impact its flexibility. I would take a "wait and see" approach to ambitious revenue targets. Given the hefty amounts of upcoming dilution (including $124 million in convertible debt) and a need for additional high-cost capital in the near future, there isn't much downside to waiting on the sidelines.

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.