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.
Just because a company is spending heavily doesn’t mean it’s on the right track, and StockStory is here to separate the winners from the losers. That said, here are three cash-burning companies that don’t make the cut and some better opportunities instead.
Beyond Meat (BYND)
Trailing 12-Month Free Cash Flow Margin: -49.2%
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 Steer Clear of BYND?
- Declining unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Free cash flow margin dropped by 16.7 percentage points over the last year, implying the company became more capital intensive as competition picked up
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Beyond Meat’s stock price of $1.10 implies a valuation ratio of 0.3x forward price-to-sales. Read our free research report to see why you should think twice about including BYND in your portfolio.
Alta (ALTG)
Trailing 12-Month Free Cash Flow Margin: -1.2%
Founded in 1984, Alta Equipment Group (NYSE: ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.
Why Do We Think ALTG Will Underperform?
- Muted 1.1% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Cash-burning history makes us doubt the long-term viability of its business model
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $4.86 per share, Alta trades at 6.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why ALTG doesn’t pass our bar.
Applied Digital (APLD)
Trailing 12-Month Free Cash Flow Margin: -456%
Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ: APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.
Why Are We Cautious About APLD?
- Earnings per share fell by 83.8% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Free cash flow margin shrank by 54.3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Applied Digital is trading at $28.10 per share, or 65.9x forward EV-to-EBITDA. To fully understand why you should be careful with APLD, check out our full research report (it’s free for active Edge members).
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