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.
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. Keeping that in mind, here are three cash-burning companies that don’t make the cut and some better opportunities instead.
Byrna (BYRN)
Trailing 12-Month Free Cash Flow Margin: -6.5%
Providing civilians with tools to disable, disarm, and deter would-be assailants, Byrna (NASDAQ: BYRN) is a provider of non-lethal weapons.
Why Is BYRN Not Exciting?
- Negative free cash flow raises questions about the return timeline for its investments
- Push for growth has led to negative returns on capital, signaling value destruction
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Byrna’s stock price of $6.32 implies a valuation ratio of 27.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why BYRN doesn’t pass our bar.
NN (NNBR)
Trailing 12-Month Free Cash Flow Margin: -2.7%
Formerly known as Nuturn, NN (NASDAQ: NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Why Do We Think NNBR Will Underperform?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
NN is trading at $2.96 per share, or 32.4x forward P/E. Dive into our free research report to see why there are better opportunities than NNBR.
Golar LNG (GLNG)
Trailing 12-Month Free Cash Flow Margin: -183%
Pioneering a way to monetize stranded gas reserves that would otherwise be uneconomical to develop, Golar LNG (NASDAQ: GLNG) converts ships into floating liquefied natural gas facilities that liquefy natural gas at offshore sites.
Why Does GLNG Give Us Pause?
- Sales tumbled by 2.7% annually over the last five years, showing market trends are working against it during this cycle
- 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 $49.75 per share, Golar LNG trades at 74.2x forward P/E. To fully understand why you should be careful with GLNG, check out our full research report (it’s free).
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