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.

GoPro (GPRO)

Trailing 12-Month Free Cash Flow Margin: -16.1%

Known for sponsoring extreme athletes, GoPro (NASDAQ: GPRO) is a camera company known for its POV videos and editing software.

Why Do We Think GPRO Will Underperform?

1. Sluggish trends in its cameras sold suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

GoPro is trading at $0.61 per share, or 3.3x forward P/E. Check out our free in-depth research report to learn more about why GPRO doesn’t pass our bar.

Tilly's (TLYS)

Trailing 12-Month Free Cash Flow Margin: -8.8%

With an emphasis on skate and surf culture, Tilly’s (NYSE: TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.

Why Do We Avoid TLYS?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Sales were less profitable over the last five years as its earnings per share fell by 32.2% annually, worse than its revenue declines
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Tilly’s stock price of $1.19 implies a valuation ratio of 0.1x forward price-to-sales. If you’re considering TLYS for your portfolio, see our FREE research report to learn more.

First Watch (FWRG)

Trailing 12-Month Free Cash Flow Margin: -2.4%

Based on a nautical reference to the first work shift aboard a ship, First Watch (NASDAQ: FWRG) is a chain of breakfast and brunch restaurants whose menu is heavily-focused on eggs and griddle items such as pancakes.

Why Are We Wary of FWRG?

1. Cash-burning history and the downward spiral in its margin profile make us wonder if it has a viable business model
2. Below-average returns on capital indicate management struggled to find compelling investment opportunities
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $15.56 per share, First Watch trades at 40.8x forward P/E. Read our free research report to see why you should think twice about including FWRG in your portfolio.

Stocks We Like More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.