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 steer clear of and a few better alternatives.
Lucid (LCID)
Trailing 12-Month Free Cash Flow Margin: -332%
Founded by a former Tesla Vice President, Lucid Group (NASDAQ: LCID) designs, manufactures, and sells luxury electric vehicles with long-range capabilities.
Why Are We Cautious About LCID?
- Negative 136% gross margin means it loses money on every sale and must pivot or scale quickly to survive
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Lucid’s stock price of $6.53 implies a valuation ratio of 0.9x forward price-to-sales. If you’re considering LCID for your portfolio, see our FREE research report to learn more.
Applied Digital (APLD)
Trailing 12-Month Free Cash Flow Margin: -509%
Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ: APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.
Why Are We Hesitant About APLD?
- Smaller revenue base of $355.5 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy (but also enables it to grow faster if it executes properly)
- Cash-burning history makes us doubt the long-term viability of its business model
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Applied Digital is trading at $47.18 per share, or 62.9x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why APLD doesn’t pass our bar.
Bunge Global (BG)
Trailing 12-Month Free Cash Flow Margin: -1.4%
With origins dating back to 1818 and operations spanning both hemispheres to balance seasonal harvests, Bunge Global (NYSE: BG) is an agribusiness and food company that processes oilseeds, grains, and other agricultural commodities into vegetable oils, protein meals, flours, and specialty ingredients.
Why Are We Wary of BG?
- Annual sales growth of 6.5% over the last three years lagged behind its consumer staples peers as its large revenue base made it difficult to generate incremental demand
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 17% annually while its revenue grew
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $123.41 per share, Bunge Global trades at 12.2x forward P/E. Read our free research report to see why you should think twice about including BG in your portfolio.
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