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.
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.
Magnachip (MX)
Trailing 12-Month Free Cash Flow Margin: -8.3%
With its technology found in common consumer electronics such as TVs and smartphones, Magnachip Semiconductor (NYSE: MX) is a provider of analog and mixed-signal semiconductors.
Why Is MX Risky?
- Sales tumbled by 18.5% annually over the last five years, showing market trends are working against its favor during this cycle
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Cash-burning history and the downward spiral in its margin profile make us wonder if it has a viable business model
At $3.68 per share, Magnachip trades at 0.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than MX.
America's Car-Mart (CRMT)
Trailing 12-Month Free Cash Flow Margin: -6%
With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ: CRMT) sells used cars to budget-conscious consumers.
Why Do We Avoid CRMT?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 20.2% that must be offset through higher volumes
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
America's Car-Mart’s stock price of $46.63 implies a valuation ratio of 14.7x forward P/E. Read our free research report to see why you should think twice about including CRMT in your portfolio.
Rocket Lab (RKLB)
Trailing 12-Month Free Cash Flow Margin: -38%
Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ: RKLB) offers rockets designed for launching small satellites.
Why Does RKLB Worry Us?
- Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Rocket Lab is trading at $25.38 per share, or 20.6x forward price-to-sales. To fully understand why you should be careful with RKLB, check out our full research report (it’s free).
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out 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 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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.
