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 is one high-risk, high-reward company that could turn today’s losses into tomorrow’s gains and two that could run into serious trouble.
Two Stocks to Sell:
Dave & Buster's (PLAY)
Trailing 12-Month Free Cash Flow Margin: -14.8%
Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ:PLAY) operates a chain of arcades providing immersive entertainment experiences.
Why Does PLAY Give Us Pause?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- 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
Dave & Buster’s stock price of $18.28 implies a valuation ratio of 9.1x forward P/E. Read our free research report to see why you should think twice about including PLAY in your portfolio.
Lemonade (LMND)
Trailing 12-Month Free Cash Flow Margin: -3.6%
Built on the principle of giving back unused premiums to charitable causes selected by policyholders, Lemonade (NYSE:LMND) is a technology-driven insurance company that offers homeowners, renters, pet, car, and life insurance through an AI-powered digital platform.
Why Is LMND Not Exciting?
- Earnings per share were flat over the last four years and fell short of the peer group average
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 183% annually over the last five years
- Negative return on equity shows that some of its growth strategies have backfired
At $53.40 per share, Lemonade trades at 8.6x forward P/B. If you’re considering LMND for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
SoFi (SOFI)
Trailing 12-Month Free Cash Flow Margin: -98.8%
Starting as a student loan refinancing company founded by Stanford business school students in 2011, SoFi Technologies (NASDAQ:SOFI) operates a digital financial platform offering lending, banking, investing, and other financial services to help members borrow, save, spend, invest, and protect their money.
Why Will SOFI Outperform?
- Market share has increased this cycle as its 28.5% annual revenue growth over the last two years was exceptional
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 75.9% over the last two years outstripped its revenue performance
SoFi is trading at $25.92 per share, or 70x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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