Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
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 to avoid and some better opportunities instead.
Sabre (SABR)
Trailing 12-Month Free Cash Flow Margin: -6.9%
Originally a division of American Airlines, Sabre (NASDAQ:SABR) is a technology provider for the global travel and tourism industry.
Why Should You Sell SABR?
- Sales trends were unexciting over the last five years as its 15.7% annual growth was below the typical consumer discretionary company
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Sabre’s stock price of $1.93 implies a valuation ratio of 7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SABR.
Shoals (SHLS)
Trailing 12-Month Free Cash Flow Margin: -3.4%
Started in Huntsville, Alabama, Shoals (NASDAQ:SHLS) designs and manufactures products that make solar energy systems work more efficiently.
Why Are We Hesitant About SHLS?
- Annual sales declines of 1.4% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Eroding returns on capital suggest its historical profit centers are aging
Shoals is trading at $7.25 per share, or 17.2x forward P/E. To fully understand why you should be careful with SHLS, check out our full research report (it’s free).
Integra LifeSciences (IART)
Trailing 12-Month Free Cash Flow Margin: -1.9%
Founded in 1989 as a pioneer in regenerative medicine technology, Integra LifeSciences (NASDAQ:IART) develops and manufactures medical technologies for neurosurgery, wound care, and surgical reconstruction, including regenerative tissue products and surgical instruments.
Why Do We Think IART Will Underperform?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 19 percentage points
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $11.16 per share, Integra LifeSciences trades at 4.7x forward P/E. Read our free research report to see why you should think twice about including IART in your portfolio.
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