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. Keeping that in mind, here are three cash-burning companies to avoid and some better opportunities instead.
Sleep Number (SNBR)
Trailing 12-Month Free Cash Flow Margin: -1.3%
Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ:SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.
Why Do We Pass on SNBR?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 41.7% annually, worse than its revenue
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Sleep Number is trading at $3.07 per share, or 11.7x forward EV-to-EBITDA. If you’re considering SNBR for your portfolio, see our FREE research report to learn more.
GATX (GATX)
Trailing 12-Month Free Cash Flow Margin: -39.3%
Originally founded to ship beer, GATX (NYSE:GATX) provides leasing and management services for railcars and other transportation assets globally.
Why Are We Cautious About GATX?
- Number of active railcars has disappointed over the past two years, indicating weak demand for its offerings
- Negative free cash flow raises questions about the return timeline for its investments
- High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate
GATX’s stock price of $195.64 implies a valuation ratio of 19.6x forward P/E. Read our free research report to see why you should think twice about including GATX in your portfolio.
Stratasys (SSYS)
Trailing 12-Month Free Cash Flow Margin: -1.3%
Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ:SSYS) offers 3D printers and related materials, software, and services to many industries.
Why Should You Sell SSYS?
- Sales tumbled by 6.3% annually over the last two years, showing market trends are working against its favor during this cycle
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Cash-burning history makes us doubt the long-term viability of its business model
At $8.90 per share, Stratasys trades at 77.1x forward P/E. Dive into our free research report to see why there are better opportunities than SSYS.
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