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.
Just because a company is spending heavily doesn’t mean it’s on the right track, and StockStory is here to separate the winners from the losers. Keeping that in mind, 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: -4.9%
With a history dating back to 1852, Smith & Wesson (NASDAQ: SWBI) is a firearms manufacturer known for its handguns and rifles.
Why Is SWBI Risky?
- Flat sales over the last five years suggest it must innovate and find new ways to grow
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Waning returns on capital imply its previous profit engines are losing steam
At $9.88 per share, Smith & Wesson trades at 17.4x forward P/E. Dive into our free research report to see why there are better opportunities than SWBI.
Fluence Energy (FLNC)
Trailing 12-Month Free Cash Flow Margin: -12.5%
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.
Why Does FLNC Worry Us?
- Gross margin of 6.4% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Free cash flow margin shrank by 12 percentage points over the last five years, suggesting the company stepped up its investments to maintain its competitive edge
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Fluence Energy’s stock price of $5.26 implies a valuation ratio of 12.9x forward P/E. Read our free research report to see why you should think twice about including FLNC in your portfolio.
WEBTOON (WBTN)
Trailing 12-Month Free Cash Flow Margin: -2.8%
Pioneering a vertical-scrolling format optimized for mobile devices, WEBTOON Entertainment (NASDAQ: WBTN) operates a global platform where creators publish serialized web-comics and web-novels that users can read in bite-sized episodes.
Why Is WBTN Not Exciting?
- Performance surrounding its monthly active users has lagged its peers
- Historically negative EPS is a worrisome sign for conservative investors and obscures its long-term earnings potential
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
WEBTOON is trading at $8.58 per share, or 20.8x forward EV-to-EBITDA. If you’re considering WBTN for your portfolio, see our FREE research report to learn more.
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