Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
Negative cash flow can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. Keeping that in mind, here are three cash-burning companies that don’t make the cut and some better opportunities instead.
Sweetgreen (SG)
Trailing 12-Month Free Cash Flow Margin: -17.6%
Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE:SG) is a casual quick service chain known for its healthy salads and bowls.
Why Do We Avoid SG?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Free cash flow margin dropped by 8.7 percentage points over the last year, implying the company became more capital intensive as competition picked up
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $7.09 per share, Sweetgreen trades at 118.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SG in your portfolio.
Wabash (WNC)
Trailing 12-Month Free Cash Flow Margin: -4.6%
With its first trailer reportedly built on two sawhorses, Wabash (NYSE:WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.
Why Do We Steer Clear of WNC?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 29% declines over the past two years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Wabash is trading at $13.24 per share, or 0.3x forward price-to-sales. To fully understand why you should be careful with WNC, check out our full research report (it’s free).
Insteel (IIIN)
Trailing 12-Month Free Cash Flow Margin: -1.4%
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE:IIIN) provides steel wire reinforcing products for concrete.
Why Do We Think Twice About IIIN?
- 4.9% annual revenue growth over the last five years was slower than its industrials peers
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 6.6% annually while its revenue grew
- Diminishing returns on capital suggest its earlier profit pools are drying up
Insteel’s stock price of $31.00 implies a valuation ratio of 14.4x forward P/E. If you’re considering IIIN for your portfolio, see our FREE research report to learn more.
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