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.

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 to avoid and some better opportunities instead.

Lovesac (LOVE)

Trailing 12-Month Free Cash Flow Margin: -2%

Known for its oversized, premium beanbags, Lovesac (NASDAQ: LOVE) is a specialty furniture brand selling modular furniture.

Why Do We Pass on LOVE?

1. Annual revenue growth of 19.5% over the last five years was below our standards for the consumer discretionary sector
2. Low free cash flow margin of 1.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Lovesac is trading at $12.87 per share, or 10.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why LOVE doesn’t pass our bar.

JELD-WEN (JELD)

Trailing 12-Month Free Cash Flow Margin: -5.1%

Founded in the 1960s as a general wood-making company, JELD-WEN (NYSE: JELD) manufactures doors, windows, and other related building products.

Why Is JELD Risky?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $2.78 per share, JELD-WEN trades at 11.1x forward EV-to-EBITDA. If you’re considering JELD for your portfolio, see our FREE research report to learn more.

PacBio (PACB)

Trailing 12-Month Free Cash Flow Margin: -81.7%

Pioneering what scientists call "HiFi long-read sequencing," recognized as Nature Methods' method of the year for 2022, Pacific Biosciences (NASDAQ: PACB) develops advanced DNA sequencing systems that enable scientists and researchers to analyze genomes with unprecedented accuracy and completeness.

Why Do We Think PACB Will Underperform?

1. Annual sales declines of 4.5% for the past two years show its products and services struggled to connect with the market during this cycle
2. Increased cash burn over the last five years raises questions about the return timeline for its investments
3. EBITDA losses may force it to accept punitive lending terms or high-cost debt

PacBio’s stock price of $1.71 implies a valuation ratio of 3.4x forward price-to-sales. Read our free research report to see why you should think twice about including PACB in your portfolio.

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