What a fantastic six months it’s been for Rumble. Shares of the company have skyrocketed 45.7%, hitting $7.62. This run-up might have investors contemplating their next move.

Is there a buying opportunity in Rumble, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Despite the momentum, we're sitting this one out for now. Here are three reasons why we avoid RUM and a stock we'd rather own.

Why Is Rumble Not Exciting?

Founded in 2013 as a champion for content creator rights and free expression, Rumble (NASDAQ: RUM) is a video sharing platform that positions itself as a free speech alternative to mainstream platforms, offering creators more favorable revenue-sharing opportunities.

1. EPS Trending Down

We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Rumble’s earnings losses deepened over the last two years as its EPS dropped 57% annually. We’ll keep a close eye on the company as diminishing earnings could imply changing secular trends and preferences.

2. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Rumble’s margin dropped by 23.7 percentage points over the last four years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because it’s already burning cash. If the longer-term trend returns, it could signal it’s in the middle of a big investment cycle. Rumble’s free cash flow margin for the trailing 12 months was negative 93.9%.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Rumble burned through $89.68 million of cash over the last year. With $114 million of cash on its balance sheet, the company has around 15 months of runway left (assuming its $1.80 million of debt isn’t due right away).

Unless the Rumble’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Rumble until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

Rumble isn’t a terrible business, but it doesn’t pass our bar. Following the recent rally, the stock trades at $7.62 per share (or 14.4× forward price-to-sales). The market typically values companies like Rumble based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d recommend looking at a top digital advertising platform riding the creator economy.

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