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.
Negative cash flow can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. Keeping that in mind, here are three cash-burning companies to avoid and some better opportunities instead.
SmartRent (SMRT)
Trailing 12-Month Free Cash Flow Margin: -16.5%
Founded by an employee at a real estate rental company, SmartRent (NYSE: SMRT) provides smart home devices and software for multifamily residential properties, single-family rental homes, and student housing communities.
Why Does SMRT Fall Short?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 19.8% annually over the last two years
- Flat earnings per share over the last two years lagged its peers
- Cash-burning history makes us doubt the long-term viability of its business model
SmartRent’s stock price of $1.59 implies a valuation ratio of 133.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SMRT.
Orion (ORN)
Trailing 12-Month Free Cash Flow Margin: -1.3%
Established in 1994, Orion (NYSE: ORN) provides construction services for marine infrastructure and industrial projects.
Why Is ORN Not Exciting?
- 3.7% annual revenue growth over the last five years was slower than its industrials peers
- Issuance of new shares over the last five years caused its earnings per share to fall by 11.9% annually while its revenue grew
- Low free cash flow margin of -0.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Orion is trading at $11.17 per share, or 27.7x forward P/E. If you’re considering ORN for your portfolio, see our FREE research report to learn more.
Oracle (ORCL)
Trailing 12-Month Free Cash Flow Margin: -38.6%
Starting as a database company in 1977 and now powering mission-critical systems across the globe, Oracle (NYSE: ORCL) provides enterprise software and hardware products and services that help businesses manage their information technology needs.
Why Does ORCL Worry Us?
- The company has faced growth challenges as its 10.1% annual revenue increases over the last five years fell short of other software companies
- 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
At $148.23 per share, Oracle trades at 5.5x forward price-to-sales. To fully understand why you should be careful with ORCL, check out our full research report (it’s free).
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