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.
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.
Domo (DOMO)
Trailing 12-Month Free Cash Flow Margin: -1.6%
Named for the Japanese word meaning "thank you very much," Domo (NASDAQ: DOMO) provides a cloud-based business intelligence platform that connects people with real-time data and insights across organizations.
Why Should You Dump DOMO?
- Customers had second thoughts about committing to its platform over the last year as its billings averaged 1.1% declines
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $15.34 per share, Domo trades at 2x forward price-to-sales. Read our free research report to see why you should think twice about including DOMO in your portfolio.
Mister Car Wash (MCW)
Trailing 12-Month Free Cash Flow Margin: -1.6%
Formerly known as Hotshine Holdings, Mister Car Wash (NYSE: MCW) offers car washes across the United States through its conveyorized service.
Why Are We Out on MCW?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- 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
Mister Car Wash’s stock price of $5.40 implies a valuation ratio of 11.6x forward P/E. Check out our free in-depth research report to learn more about why MCW doesn’t pass our bar.
First Solar (FSLR)
Trailing 12-Month Free Cash Flow Margin: -21.7%
Headquartered in Arizona, First Solar (NASDAQ: FSLR) specializes in manufacturing solar panels and providing photovoltaic solar energy solutions.
Why Are We Hesitant About FSLR?
- Sales trends were unexciting over the last five years as its 6.8% annual growth was below the typical industrials company
- Free cash flow margin dropped by 18.9 percentage points over the last five years, implying the company increased its investment activities to fend off competitors
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
First Solar is trading at $203.71 per share, or 10.4x forward P/E. If you’re considering FSLR for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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