While some companies burn cash to fuel expansion, others struggle to turn spending into sustainable growth. A high cash burn rate without a strong balance sheet can leave investors exposed to significant downside.
Negative cash flow can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. That said, here are three cash-burning companies to steer clear of and a few better alternatives.
Skillz (SKLZ)
Trailing 12-Month Free Cash Flow Margin: -71.4%
Taking a new twist at video gaming, Skillz (NYSE:SKLZ) offers developers a platform to create and distribute mobile games where players can pay fees to compete for cash prizes.
Why Should You Dump SKLZ?
- Value proposition isn’t resonating strongly as its paying monthly active users averaged 24.5% drops over the last two years
- Cash burn has widened over the last few years, making us question whether it can reliably generate shareholder value
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Skillz’s stock price of $6.86 implies a valuation ratio of 1x forward price-to-gross profit. To fully understand why you should be careful with SKLZ, check out our full research report (it’s free for active Edge members).
Perma-Fix (PESI)
Trailing 12-Month Free Cash Flow Margin: -27.4%
Tackling hazardous waste challenges since 1990, Perma-Fix (NASDAQ:PESI) provides environmental waste treatment services.
Why Should You Sell PESI?
- Sales tumbled by 8.1% annually over the last five years, showing market trends are working against its favor during this cycle
- Free cash flow margin shrank by 31.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Perma-Fix is trading at $14.10 per share, or 3.2x forward price-to-sales. Read our free research report to see why you should think twice about including PESI in your portfolio.
Stratasys (SSYS)
Trailing 12-Month Free Cash Flow Margin: -1.9%
Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ:SSYS) offers 3D printers and related materials, software, and services to many industries.
Why Are We Out on SSYS?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Poor expense management has led to operating margin losses
- Free cash flow margin dropped by 6.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $12.47 per share, Stratasys trades at 86.1x forward P/E. To fully understand why you should be careful with SSYS, check out our full research report (it’s free for active Edge members).
High-Quality Stocks for All Market Conditions
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