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.
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. That said, here are three cash-burning companies that don’t make the cut and some better opportunities instead.
Caleres (CAL)
Trailing 12-Month Free Cash Flow Margin: -1.2%
The owner of Dr. Scholl's, Caleres (NYSE: CAL) is a footwear company offering a range of styles.
Why Should You Dump CAL?
- Products and services have few die-hard fans as sales have declined by 3.6% annually over the last two years
- Low free cash flow margin of 2% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Caleres is trading at $14.99 per share, or 5.7x forward P/E. Dive into our free research report to see why there are better opportunities than CAL.
WideOpenWest (WOW)
Trailing 12-Month Free Cash Flow Margin: -8.1%
Initially started in Denver as a cable television provider, WideOpenWest (NYSE: WOW) provides high-speed internet, cable, and telephone services to the Midwest and Southeast regions of the U.S.
Why Do We Think WOW Will Underperform?
- Number of subscribers has disappointed over the past two years, indicating weak demand for its offerings
- 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
At $5.22 per share, WideOpenWest trades at 1.6x forward EV-to-EBITDA. To fully understand why you should be careful with WOW, check out our full research report (it’s free).
Sunrun (RUN)
Trailing 12-Month Free Cash Flow Margin: -38.2%
Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ: RUN) provides residential solar electricity, specializing in panel installation and leasing services.
Why Does RUN Worry Us?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 6.2% annually over the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Sunrun’s stock price of $16.26 implies a valuation ratio of 22.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why RUN doesn’t pass our bar.
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