Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
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.
Sunrun (RUN)
Trailing 12-Month Free Cash Flow Margin: -14.3%
Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ: RUN) provides residential solar electricity, specializing in panel installation and leasing services.
Why Are We Hesitant About RUN?
- Persistent operating margin losses suggest the business manages its expenses poorly
- Cash-burning history makes us doubt the long-term viability of its business model
Sunrun’s stock price of $12.07 implies a valuation ratio of 30.9x forward P/E. To fully understand why you should be careful with RUN, check out our full research report (it’s free).
STAAR Surgical (STAA)
Trailing 12-Month Free Cash Flow Margin: -16.7%
With over 2.5 million implants performed worldwide, STAAR Surgical (NASDAQ: STAA) designs and manufactures implantable lenses that correct vision problems without removing the eye's natural lens.
Why Is STAA Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 13.8% annually over the last two years
- Free cash flow margin shrank by 29.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $25.60 per share, STAAR Surgical trades at 47.8x forward P/E. Dive into our free research report to see why there are better opportunities than STAA.
Acadia Healthcare (ACHC)
Trailing 12-Month Free Cash Flow Margin: -8.7%
With a network of over 250 facilities serving patients in 38 states and Puerto Rico, Acadia Healthcare (NASDAQ: ACHC) operates facilities providing mental health and substance use disorder treatment services across the United States.
Why Do We Avoid ACHC?
- Weak admissions over the past two years indicate demand is soft and that the company may need to revise its strategy
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 6.7% annually while its revenue grew
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Acadia Healthcare is trading at $26.53 per share, or 18.2x forward P/E. Read our free research report to see why you should think twice about including ACHC in your portfolio.
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