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.
Hudson Technologies (HDSN)
Trailing 12-Month Free Cash Flow Margin: -13.4%
Founded in 1991, Hudson Technologies (NASDAQ: HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.
Why Should You Sell HDSN?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Hudson Technologies is trading at $5.15 per share, or 9.9x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why HDSN doesn’t pass our bar.
Ameresco (AMRC)
Trailing 12-Month Free Cash Flow Margin: -21.2%
Having played a role in upgrading the energy solutions of Alcatraz Island, Ameresco (NYSE: AMRC) provides energy and renewable energy solutions for various sectors.
Why Does AMRC Give Us Pause?
- Earnings per share fell by 15.7% annually over the last five years while its revenue grew, partly because it diluted shareholders
- 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 $19.11 per share, Ameresco trades at 14x forward P/E. To fully understand why you should be careful with AMRC, check out our full research report (it’s free).
BKV (BKV)
Trailing 12-Month Free Cash Flow Margin: -13.5%
Operating a "closed-loop" model linking gas production to carbon capture, BKV (NYSE: BKV) produces natural gas from shale formations in Texas and Pennsylvania, selling it to utilities, industrial users, and exporters.
Why Are We Bearish on BKV?
- Subscale operations are evident in its revenue base of $1.51 billion, meaning it has fewer distribution channels than its larger rivals
- Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 18.8 percentage points
- Negative free cash flow raises questions about the return timeline for its investments
BKV’s stock price of $22.70 implies a valuation ratio of 14x forward P/E. Dive into our free research report to see why there are better opportunities than BKV.
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