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.
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 steer clear of and a few better alternatives.
Clarus (CLAR)
Trailing 12-Month Free Cash Flow Margin: -4.9%
Initially a financial services business, Clarus (NASDAQ: CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.
Why Do We Avoid CLAR?
- Sales were flat over the last five years, indicating it’s failed to expand its business
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Clarus’s stock price of $3.37 implies a valuation ratio of 39.8x forward P/E. If you’re considering CLAR for your portfolio, see our FREE research report to learn more.
Matthews (MATW)
Trailing 12-Month Free Cash Flow Margin: -8.2%
Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.
Why Are We Out on MATW?
- Products and services have few die-hard fans as sales have declined by 5% annually over the last five years
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $26.75 per share, Matthews trades at 0.7x trailing 12-month price-to-sales. To fully understand why you should be careful with MATW, check out our full research report (it’s free).
DHT Holdings (DHT)
Trailing 12-Month Free Cash Flow Margin: -29.2%
With each vessel capable of carrying roughly 2 million barrels of oil—enough to fill about 125 Olympic swimming pools—DHT Holdings (NYSE: DHT) operates very large crude carriers that transport crude oil across international routes for energy companies and traders.
Why Do We Think Twice About DHT?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Smaller revenue base of $448 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Costly operations and weak unit economics result in an inferior gross margin of 33.5% that must be offset through higher production volumes
DHT Holdings is trading at $17.78 per share, or 5.9x forward P/E. Dive into our free research report to see why there are better opportunities than DHT.
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