Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
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.
RH (RH)
Trailing 12-Month Free Cash Flow Margin: -1.5%
Formerly known as Restoration Hardware, RH (NYSE: RH) is a specialty retailer that exclusively sells its own brand of high-end furniture and home decor.
Why Are We Wary of RH?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Negative free cash flow raises questions about the return timeline for its investments
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
RH’s stock price of $161.45 implies a valuation ratio of 15.2x forward P/E. If you’re considering RH for your portfolio, see our FREE research report to learn more.
Norwegian Cruise Line (NCLH)
Trailing 12-Month Free Cash Flow Margin: -10.7%
With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE: NCLH) is a premier global cruise company.
Why Should You Sell NCLH?
- Number of passenger cruise days has disappointed over the past two years, indicating weak demand for its offerings
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Norwegian Cruise Line is trading at $18.96 per share, or 7.3x forward P/E. Dive into our free research report to see why there are better opportunities than NCLH.
EVgo (EVGO)
Trailing 12-Month Free Cash Flow Margin: -36.9%
Created through a settlement between NRG Energy and the California Public Utilities Commission, EVgo (NASDAQ: EVGO) is a provider of electric vehicle charging solutions, operating fast charging stations across the United States.
Why Do We Think Twice About EVGO?
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Cash-burning history makes us doubt the long-term viability of its business model
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $3.42 per share, EVgo trades at 17.9x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why EVGO doesn’t pass our bar.
Stocks We Like More
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