Companies that burn cash at a rapid pace can run into serious trouble if they fail to secure funding. Without a clear path to profitability, these businesses risk dilution, mounting debt, or even bankruptcy.
Not all companies are worth the risk, and that’s why we built StockStory - to help you spot the red flags. That said, here are three cash-burning companies that don’t make the cut and some better opportunities instead.
Avis Budget Group (CAR)
Trailing 12-Month Free Cash Flow Margin: -6.5%
The parent company of brands such as Zipcar and Budget Truck Rental, Avis (NASDAQ: CAR) is a provider of car rental and mobility solutions.
Why Do We Think Twice About CAR?
- Sales tumbled by 1.5% annually over the last two years, showing market trends are working against its favor during this cycle
- Diminishing returns on capital suggest its earlier profit pools are drying up
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Avis Budget Group’s stock price of $98.46 implies a valuation ratio of 26.1x forward P/E. If you’re considering CAR for your portfolio, see our FREE research report to learn more.
Resideo (REZI)
Trailing 12-Month Free Cash Flow Margin: -16.8%
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Does REZI Worry Us?
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
- Free cash flow margin shrank by 21.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital suggest its historical profit centers are aging
At $33.57 per share, Resideo trades at 10.9x forward P/E. Dive into our free research report to see why there are better opportunities than REZI.
Applied Digital (APLD)
Trailing 12-Month Free Cash Flow Margin: -476%
Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ: APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.
Why Does APLD Fall Short?
- Flat earnings per share over the last three years underperformed the sector average
- Free cash flow margin shrank by 79.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Applied Digital is trading at $26.90 per share, or 64.2x forward EV-to-EBITDA. To fully understand why you should be careful with APLD, check out our full research report (it’s free).
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