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.

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 that don’t make the cut and some better opportunities instead.

Smith & Wesson (SWBI)

Trailing 12-Month Free Cash Flow Margin: -1.2%

With a history dating back to 1852, Smith & Wesson (NASDAQ: SWBI) is a firearms manufacturer known for its handguns and rifles.

Why Do We Pass on SWBI?

1. Annual sales declines of 6.6% for the past five years show its products and services struggled to connect with the market
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Waning returns on capital imply its previous profit engines are losing steam

Smith & Wesson is trading at $8.81 per share, or 47x forward P/E. If you’re considering SWBI for your portfolio, see our FREE research report to learn more.

ChargePoint (CHPT)

Trailing 12-Month Free Cash Flow Margin: -20%

The most prominent EV charging company during the COVID bull market, ChargePoint (NYSE: CHPT) is a provider of electric vehicle charging technology solutions in North America and Europe.

Why Do We Think Twice About CHPT?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 15.6% annually over the last two years
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. EBITDA losses may force it to accept punitive lending terms or high-cost debt

At $9.89 per share, ChargePoint trades at 0.5x forward price-to-sales. Check out our free in-depth research report to learn more about why CHPT doesn’t pass our bar.

Universal Logistics (ULH)

Trailing 12-Month Free Cash Flow Margin: -4%

Founded in 1932, Universal Logistics (NASDAQ: ULH) is a provider of customized transportation and logistics solutions operating throughout the United States and in Mexico, Canada, and Colombia.

Why Do We Avoid ULH?

1. Annual sales declines of 4.1% for the past two years show its products and services struggled to connect with the market during this cycle
2. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Universal Logistics’s stock price of $15.06 implies a valuation ratio of 12.2x forward P/E. Dive into our free research report to see why there are better opportunities than ULH.

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