Companies that burn cash at a rapid pace can run into serious trouble if they fail to secure funding. Without a clear path to profitability, these businesses risk dilution, mounting debt, or even bankruptcy.
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.
Advance Auto Parts (AAP)
Trailing 12-Month Free Cash Flow Margin: -2.8%
Founded in Virginia in 1932, Advance Auto Parts (NYSE: AAP) is an auto parts and accessories retailer that sells everything from carburetors to motor oil to car floor mats.
Why Should You Dump AAP?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Operating profits fell over the last year as its sales dropped and it struggled to adjust its fixed costs
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Advance Auto Parts’s stock price of $65.52 implies a valuation ratio of 31.1x forward P/E. Dive into our free research report to see why there are better opportunities than AAP.
Norwegian Cruise Line (NCLH)
Trailing 12-Month Free Cash Flow Margin: -5.9%
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 Do We Think Twice About NCLH?
- Demand for its offerings was relatively low as its number of passenger cruise days has underwhelmed
- 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
At $24.27 per share, Norwegian Cruise Line trades at 11.4x forward P/E. To fully understand why you should be careful with NCLH, check out our full research report (it’s free).
NN (NNBR)
Trailing 12-Month Free Cash Flow Margin: -2.2%
Formerly known as Nuturn, NN (NASDAQ: NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Why Do We Avoid NNBR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.3% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Long-term business health is up for debate as its cash burn has increased over the last five years
NN is trading at $2.03 per share, or 334.8x forward P/E. If you’re considering NNBR for your portfolio, see our FREE research report to learn more.
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