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.
Negative cash flow can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. That said, here are three cash-burning companies that don’t make the cut and some better opportunities instead.
Smith & Wesson (SWBI)
Trailing 12-Month Free Cash Flow Margin: -1.2%
With a history dating back to 1852, Smith & Wesson (NASDAQ: SWBI) is a firearms manufacturer known for its handguns and rifles.
Why Do We Pass on SWBI?
- Annual sales declines of 6.6% for the past five years show its products and services struggled to connect with the market
- Cash-burning history makes us doubt the long-term viability of its business model
- Waning returns on capital imply its previous profit engines are losing steam
Smith & Wesson is trading at $8.81 per share, or 47x forward P/E. If you’re considering SWBI for your portfolio, see our FREE research report to learn more.
ChargePoint (CHPT)
Trailing 12-Month Free Cash Flow Margin: -20%
The most prominent EV charging company during the COVID bull market, ChargePoint (NYSE: CHPT) is a provider of electric vehicle charging technology solutions in North America and Europe.
Why Do We Think Twice About CHPT?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 15.6% annually over the last two years
- Cash burn makes us question whether it can achieve sustainable long-term growth
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
At $9.89 per share, ChargePoint trades at 0.5x forward price-to-sales. Check out our free in-depth research report to learn more about why CHPT doesn’t pass our bar.
Universal Logistics (ULH)
Trailing 12-Month Free Cash Flow Margin: -4%
Founded in 1932, Universal Logistics (NASDAQ: ULH) is a provider of customized transportation and logistics solutions operating throughout the United States and in Mexico, Canada, and Colombia.
Why Do We Avoid ULH?
- Annual sales declines of 4.1% 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
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Universal Logistics’s stock price of $15.06 implies a valuation ratio of 12.2x forward P/E. Dive into our free research report to see why there are better opportunities than ULH.
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