Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
Just because a company is spending heavily doesn’t mean it’s on the right track, and StockStory is here to separate the winners from the losers. Keeping that in mind, here are three cash-burning companies to avoid and some better opportunities instead.
Bark (BARK)
Trailing 12-Month Free Cash Flow Margin: -8.6%
Making a name for itself with the BarkBox, Bark (NYSE: BARK) specializes in subscription-based, personalized pet products.
Why Do We Think BARK Will Underperform?
- Sales trends were unexciting over the last five years as its 5.2% annual growth was below the typical consumer discretionary company
- Negative free cash flow raises questions about the return timeline for its investments
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Bark is trading at $8.82 per share, or 23.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why BARK doesn’t pass our bar.
Custom Truck One Source (CTOS)
Trailing 12-Month Free Cash Flow Margin: -7.6%
Inspired by a family gas station, Custom Truck One Source (NYSE: CTOS) is a distributor of trucks and heavy equipment.
Why Are We Out on CTOS?
- Annual revenue growth of 2.1% over the last two years was below our standards for the industrials sector
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 6.8% annually
- Free cash flow margin dropped by 6.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Custom Truck One Source’s stock price of $7.36 implies a valuation ratio of 90.8x forward P/E. Read our free research report to see why you should think twice about including CTOS in your portfolio.
PAR Technology (PAR)
Trailing 12-Month Free Cash Flow Margin: -7.9%
Originally founded in 1968 as a defense contractor for the U.S. government, PAR Technology (NYSE: PAR) provides cloud-based software, payment processing, and hardware solutions that help restaurants manage everything from point-of-sale to customer loyalty programs.
Why Are We Hesitant About PAR?
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Negative returns on capital show that some of its growth strategies have backfired
At $13.72 per share, PAR Technology trades at 23.7x forward P/E. If you’re considering PAR for your portfolio, see our FREE research report to learn more.
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