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.
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 steer clear of and a few better alternatives.
Strategy (MSTR)
Trailing 12-Month Free Cash Flow Margin: -18%
Once a traditional business intelligence software provider, Strategy (NASDAQ: MSTR) develops AI-powered enterprise analytics software while also functioning as a major corporate holder of Bitcoin cryptocurrency.
Why Should You Sell MSTR?
- MicroStrategy’s core analytics software has been eclipsed by its all-in Bitcoin strategy, leaving product innovation and enterprise deals starved for attention
- The company’s debt-financed Bitcoin buying ties shareholder fortunes to crypto swings and interest rates, amplifying downside risk and uncertainty
- On the bright side, its vast Bitcoin treasury gives Executive Chairman Michael Saylor a unique springboard to capture crypto upside and court investors seeking leveraged exposure to digital assets
Strategy is trading at $98.18 per share, or 62.1x forward price-to-sales. Read our free research report to see why you should think twice about including MSTR in your portfolio.
RadNet (RDNT)
Trailing 12-Month Free Cash Flow Margin: -15.7%
With over 350 imaging facilities across seven states and a growing artificial intelligence division, RadNet (NASDAQ: RDNT) operates a network of outpatient diagnostic imaging centers across the United States, offering services like MRI, CT scans, PET scans, mammography, and X-rays.
Why Are We Hesitant About RDNT?
- Modest revenue base of $2.14 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Free cash flow margin shrank by 10.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
At $60.78 per share, RadNet trades at 85.2x forward P/E. Dive into our free research report to see why there are better opportunities than RDNT.
Ocular Therapeutix (OCUL)
Trailing 12-Month Free Cash Flow Margin: -463%
Pioneering a drug delivery platform that can eliminate the need for monthly eye injections, Ocular Therapeutix (NASDAQ: OCUL) develops sustained-release treatments for eye diseases using its proprietary ELUTYX bioresorbable hydrogel technology that gradually releases medication.
Why Should You Dump OCUL?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 6.7% annually over the last two years
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 422.2 percentage points
- Free cash flow margin dropped by 325.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Ocular Therapeutix’s stock price of $8.82 implies a valuation ratio of 38.2x forward price-to-sales. To fully understand why you should be careful with OCUL, check out our full research report (it’s free).
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