While some companies burn cash to fuel expansion, others struggle to turn spending into sustainable growth. A high cash burn rate without a strong balance sheet can leave investors exposed to significant downside.
Not all companies are worth the risk, and that’s why we built StockStory - to help you spot the red flags. Keeping that in mind, here are three cash-burning companies to avoid and some better opportunities instead.
Bally's (BALY)
Trailing 12-Month Free Cash Flow Margin: -14%
Headquartered in Providence, Rhode Island, Bally's Corporation (NYSE: BALY) is a diversified global casino-entertainment company that owns and manages casinos, resorts, and online gaming platforms.
Why Should You Sell BALY?
- Lackluster 6.9% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Bally's is trading at $13.12 per share, or 11.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than BALY.
Norwegian Cruise Line (NCLH)
Trailing 12-Month Free Cash Flow Margin: -9.5%
With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE: NCLH) is a premier global cruise company.
Why Do We Think NCLH Will Underperform?
- Number of passenger cruise days has disappointed over the past two years, indicating weak demand for its offerings
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Norwegian Cruise Line’s stock price of $20.06 implies a valuation ratio of 13.5x forward P/E. Check out our free in-depth research report to learn more about why NCLH doesn’t pass our bar.
Target Hospitality (TH)
Trailing 12-Month Free Cash Flow Margin: -2%
Building mini-communities at places such as oil drilling sites, Target Hospitality (NASDAQ: TH) is a provider of specialty workforce lodging accommodations and services.
Why Should You Dump TH?
- Number of utilized beds has disappointed over the past two years, indicating weak demand for its offerings
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 9% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $19.40 per share, Target Hospitality trades at 4.3x forward price-to-sales. If you’re considering TH for your portfolio, see our FREE research report to learn more.
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