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.
Advance Auto Parts (AAP)
Trailing 12-Month Free Cash Flow Margin: -4.7%
Founded in Virginia in 1932, Advance Auto Parts (NYSE: AAP) is an auto parts and accessories retailer that sells everything from carburetors to motor oil to car floor mats.
Why Do We Pass on AAP?
- 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 6.7 percentage points over the last year, implying the company became more capital intensive as competition picked up
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Advance Auto Parts is trading at $51.69 per share, or 19.8x forward P/E. Dive into our free research report to see why there are better opportunities than AAP.
Clarus (CLAR)
Trailing 12-Month Free Cash Flow Margin: -2.8%
Initially a financial services business, Clarus (NASDAQ: CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.
Why Should You Dump CLAR?
- Muted 4.2% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Negative free cash flow raises questions about the return timeline for its investments
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $3.36 per share, Clarus trades at 17.8x forward P/E. Read our free research report to see why you should think twice about including CLAR in your portfolio.
EchoStar (SATS)
Trailing 12-Month Free Cash Flow Margin: -5.1%
Following its 2023 acquisition of DISH Network, EchoStar (NASDAQ: SATS) provides satellite communications, pay-TV services, wireless networks, and broadband solutions across consumer and enterprise markets.
Why Should You Sell SATS?
- Annual sales declines of 6.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
EchoStar’s stock price of $69.14 implies a valuation ratio of 7.9x forward EV-to-EBITDA. To fully understand why you should be careful with SATS, check out our full research report (it’s free for active Edge members).
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in 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 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% 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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