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.

Tilly's (TLYS)

Trailing 12-Month Free Cash Flow Margin: -5.7%

With an emphasis on skate and surf culture, Tilly’s (NYSE: TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.

Why Should You Sell TLYS?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Sales were less profitable over the last six years as its earnings per share fell by 25.9% annually, worse than its revenue declines
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $1.39 per share, Tilly's trades at 0.1x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including TLYS in your portfolio.

Denny's (DENN)

Trailing 12-Month Free Cash Flow Margin: -1.2%

Open around the clock, Denny’s (NASDAQ: DENN) is a chain of diner restaurants serving breakfast and traditional American fare.

Why Do We Pass on DENN?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Free cash flow margin shrank by 8.7 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Denny’s stock price of $3.58 implies a valuation ratio of 7.2x forward P/E. Check out our free in-depth research report to learn more about why DENN doesn’t pass our bar.

Moderna (MRNA)

Trailing 12-Month Free Cash Flow Margin: -113%

Rising to global prominence during the COVID-19 pandemic with one of the first effective vaccines, Moderna (NASDAQ: MRNA) develops messenger RNA (mRNA) medicines that direct the body's cells to produce proteins with therapeutic or preventive benefits for various diseases.

Why Do We Think MRNA Will Underperform?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 46.3% annually over the last two years
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 242.8 percentage points
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Moderna is trading at $26.22 per share, or 5.3x forward price-to-sales. Read our free research report to see why you should think twice about including MRNA in your portfolio.

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