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. Keeping that in mind, here are three cash-burning companies to avoid and some better opportunities instead.
MarineMax (HZO)
Trailing 12-Month Free Cash Flow Margin: -2.3%
Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE: HZO) sells boats, yachts, and other marine products.
Why Are We Cautious About HZO?
- Store closures and poor same-store sales reveal weak demand and a push toward operational efficiency
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
MarineMax’s stock price of $23.90 implies a valuation ratio of 15.1x forward P/E. Check out our free in-depth research report to learn more about why HZO doesn’t pass our bar.
Tilray (TLRY)
Trailing 12-Month Free Cash Flow Margin: -10.7%
Founded in 2013, Tilray Brands (NASDAQ: TLRY) engages in cannabis research, cultivation, and distribution, offering a range of medical and recreational cannabis products, hemp-based foods, and alcoholic beverages.
Why Are We Out on TLRY?
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 248.3 percentage points
- Cash burn has widened over the last year, making us question whether it can reliably generate shareholder value
- Negative returns on capital show management lost money while trying to expand the business, and its falling returns suggest its earlier profit pools are drying up
At $1.67 per share, Tilray trades at 27.3x forward EV-to-EBITDA. If you’re considering TLRY for your portfolio, see our FREE research report to learn more.
Moderna (MRNA)
Trailing 12-Month Free Cash Flow Margin: -113%
Rising to global prominence during the COVID-19 pandemic with one of the first effective vaccines, Moderna (NASDAQ: MRNA) develops messenger RNA (mRNA) medicines that direct the body's cells to produce proteins with therapeutic or preventive benefits for various diseases.
Why Should You Sell MRNA?
- Annual sales declines of 46.3% for the past two years show its products and services struggled to connect with the market during this cycle
- 242.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Moderna is trading at $26.50 per share, or 5.5x forward price-to-sales. To fully understand why you should be careful with MRNA, check out our full research report (it’s free for active Edge members).
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