Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
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 steer clear of and a few better alternatives.
Fluence Energy (FLNC)
Trailing 12-Month Free Cash Flow Margin: -10.4%
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.
Why Do We Think Twice About FLNC?
- Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 3.6% annually
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Fluence Energy’s stock price of $13.50 implies a valuation ratio of 21.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why FLNC doesn’t pass our bar.
Resideo (REZI)
Trailing 12-Month Free Cash Flow Margin: -17.6%
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Does REZI Give Us Pause?
- Annual revenue growth of 7.5% over the last five years was below our standards for the industrials sector
- Free cash flow margin shrank by 20.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Waning returns on capital imply its previous profit engines are losing steam
At $35.24 per share, Resideo trades at 11.3x forward P/E. Dive into our free research report to see why there are better opportunities than REZI.
Genco (GNK)
Trailing 12-Month Free Cash Flow Margin: -43.9%
Headquartered in NYC, Genco (NYSE: GNK) is a shipping company that transports dry bulk cargo along worldwide maritime routes.
Why Is GNK Risky?
- Performance surrounding its owned vessels has lagged its peers
- Performance over the past two years shows each sale was less profitable, as its earnings per share fell by 32.6% annually
- 75.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Genco is trading at $25.37 per share, or 18x forward P/E. If you’re considering GNK for your portfolio, see our FREE research report to learn more.
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