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.
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 to steer clear of and a few better alternatives.
Funko (FNKO)
Trailing 12-Month Free Cash Flow Margin: -1.7%
Boasting partnerships with media franchises like Marvel and One Piece, Funko (NASDAQ: FNKO) is a company specializing in creating and distributing licensed pop culture collectibles.
Why Do We Think FNKO Will Underperform?
- Annual sales declines of 9.7% for the past two years show its products and services struggled to connect with the market
- 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
Funko’s stock price of $3.03 implies a valuation ratio of 3.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than FNKO.
LGI Homes (LGIH)
Trailing 12-Month Free Cash Flow Margin: -7.8%
Based in Texas, LGI Homes (NASDAQ: LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.
Why Should You Dump LGIH?
- Backlog has dropped by 10.4% on average over the past two years, suggesting it’s losing orders as competition picks up
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $45.92 per share, LGI Homes trades at 11.3x forward P/E. To fully understand why you should be careful with LGIH, check out our full research report (it’s free for active Edge members).
Strategy (MSTR)
Trailing 12-Month Free Cash Flow Margin: -28.9%
Once a traditional business intelligence software provider, Strategy (NASDAQ: MSTR) develops AI-powered enterprise analytics software while also functioning as a major corporate holder of Bitcoin cryptocurrency.
Why Should You Sell MSTR?
- MicroStrategy’s core analytics software has been eclipsed by its all-in Bitcoin strategy, leaving product innovation and enterprise deals starved for attention
- The company’s debt-financed Bitcoin buying ties shareholder fortunes to crypto swings and interest rates, amplifying downside risk and uncertainty
- On the bright side, its vast Bitcoin treasury gives Executive Chairman Michael Saylor a unique springboard to capture crypto upside and court investors seeking leveraged exposure to digital assets
Strategy is trading at $286.02 per share, or 184.3x forward price-to-sales. If you’re considering MSTR for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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