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. Keeping that in mind, here are three cash-burning companies to avoid and some better opportunities instead.
Harley-Davidson (HOG)
Trailing 12-Month Free Cash Flow Margin: -3.1%
Founded in 1903, Harley-Davidson (NYSE: HOG) is an American motorcycle manufacturer known for its heavyweight motorcycles designed for cruising on highways.
Why Should You Sell HOG?
- Sluggish trends in its motorcycles sold suggest customers aren’t adopting its solutions as quickly as the company hoped
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Harley-Davidson’s stock price of $24.46 implies a valuation ratio of 17.4x forward P/E. If you’re considering HOG for your portfolio, see our FREE research report to learn more.
Matthews (MATW)
Trailing 12-Month Free Cash Flow Margin: -7.4%
Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.
Why Do We Steer Clear of MATW?
- Annual revenue declines of 7.4% over the last five years indicate problems with its market positioning
- Cash-burning history makes us doubt the long-term viability of its business model
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Matthews is trading at $19.25 per share, or 24.7x forward P/E. Read our free research report to see why you should think twice about including MATW in your portfolio.
EVgo (EVGO)
Trailing 12-Month Free Cash Flow Margin: -48%
Created through a settlement between NRG Energy and the California Public Utilities Commission, EVgo (NASDAQ: EVGO) is a provider of electric vehicle charging solutions, operating fast charging stations across the United States.
Why Is EVGO Not Exciting?
- Historical operating margin losses point to an inefficient cost structure
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $1.28 per share, EVgo trades at 0.4x forward price-to-sales. Check out our free in-depth research report to learn more about why EVGO doesn’t pass our bar.
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