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. That said, here are three cash-burning companies to avoid and some better opportunities instead.
Sweetgreen (SG)
Trailing 12-Month Free Cash Flow Margin: -17.1%
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 Think SG Will Underperform?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Cash-burning history and the downward spiral in its margin profile make us wonder if it has a viable business model
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Sweetgreen’s stock price of $7.22 implies a valuation ratio of 1.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SG.
Hertz (HTZ)
Trailing 12-Month Free Cash Flow Margin: -5.1%
Started with a dozen Model T Fords, Hertz (NASDAQ:HTZ) is a global car rental company providing vehicle rental services to leisure and business travelers.
Why Do We Pass on HTZ?
- Annual sales declines of 2.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Diminishing returns on capital suggest its earlier profit pools are drying up
Hertz is trading at $1.82 per share, or 55.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including HTZ in your portfolio.
Stratasys (SSYS)
Trailing 12-Month Free Cash Flow Margin: -4.2%
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 Hesitant About SSYS?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Historical operating margin losses point to an inefficient cost structure
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $8.02 per share, Stratasys trades at 57.1x forward P/E. To fully understand why you should be careful with SSYS, check out our full research report (it’s free).
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