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 that don’t make the cut and some better opportunities instead.
Sweetgreen (SG)
Trailing 12-Month Free Cash Flow Margin: -14.7%
Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE:SG) is a casual quick service chain known for its healthy salads and bowls.
Why Do We Pass on SG?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 10.8 percentage points
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $7.02 per share, Sweetgreen trades at 1.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SG.
International Paper (IP)
Trailing 12-Month Free Cash Flow Margin: -1.2%
Established in 1898, International Paper (NYSE:IP) produces containerboard, pulp, paper, and materials used in packaging and printing applications.
Why Do We Steer Clear of IP?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.4% over the last five years was below our standards for the industrials sector
- 11.5 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
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
International Paper is trading at $42.11 per share, or 27.5x forward P/E. Check out our free in-depth research report to learn more about why IP doesn’t pass our bar.
Bausch + Lomb (BLCO)
Trailing 12-Month Free Cash Flow Margin: -3.9%
With a nearly 170-year history dedicated to vision care and eye health innovation, Bausch + Lomb (NYSE:BLCO) develops and manufactures a comprehensive range of eye health products including contact lenses, pharmaceuticals, surgical devices, and consumer eye care solutions.
Why Do We Think Twice About BLCO?
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 20.4% annually while its revenue grew
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 26.8 percentage points
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Bausch + Lomb’s stock price of $17.18 implies a valuation ratio of 20.8x forward P/E. Dive into our free research report to see why there are better opportunities than BLCO.
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