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 avoid and some better opportunities instead.
Sweetgreen (SG)
Trailing 12-Month Free Cash Flow Margin: -8.9%
Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE: SG) is a casual quick service chain known for its healthy salads and bowls.
Why Are We Cautious About SG?
- Historical operating margin losses point to an inefficient cost structure
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Sweetgreen is trading at $13.75 per share, or 39.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SG.
Beyond Meat (BYND)
Trailing 12-Month Free Cash Flow Margin: -33.6%
A pioneer at the forefront of the plant-based protein revolution, Beyond Meat (NASDAQ: BYND) is a food company specializing in alternatives to traditional meat products.
Why Do We Pass on BYND?
- Shrinking unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- 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
Beyond Meat’s stock price of $3.42 implies a valuation ratio of 0.8x forward price-to-sales. To fully understand why you should be careful with BYND, check out our full research report (it’s free).
Enviri (NVRI)
Trailing 12-Month Free Cash Flow Margin: -2.1%
Cooling America’s first indoor ice rink in the 19th century, Enviri (NYSE: NVRI) offers steel and waste handling services.
Why Do We Avoid NVRI?
- 7.1% annual revenue growth over the last two years was slower than its industrials peers
- Cash-burning history makes us doubt the long-term viability of its business model
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $9.40 per share, Enviri trades at 3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including NVRI in your portfolio.
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