Companies that burn cash at a rapid pace can run into serious trouble if they fail to secure funding. Without a clear path to profitability, these businesses risk dilution, mounting debt, or even bankruptcy.
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 to avoid and some better opportunities instead.
Sweetgreen (SG)
Trailing 12-Month Free Cash Flow Margin: -8.9%
Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE: SG) is a casual quick service chain known for its healthy salads and bowls.
Why Are We Cautious About SG?
- Suboptimal cost structure is highlighted by its history of operating losses
- 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
Sweetgreen’s stock price of $15.29 implies a valuation ratio of 43.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including SG in your portfolio.
AMC Entertainment (AMC)
Trailing 12-Month Free Cash Flow Margin: -10.4%
With a profile that was raised due to meme stock mania beginning in 2021, AMC Entertainment (NYSE: AMC) operates movie theaters primarily in the US and Europe.
Why Are We Wary of AMC?
- Products and services aren't resonating with the market as its revenue declined by 2.7% annually over the last five years
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
AMC Entertainment is trading at $2.82 per share, or 2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than AMC.
CoStar (CSGP)
Trailing 12-Month Free Cash Flow Margin: -1.1%
With a research department that makes over 10,000 property updates daily to its 35-year-old database, CoStar Group (NASDAQ: CSGP) provides comprehensive real estate data, analytics, and online marketplaces for commercial and residential properties in the U.S. and U.K.
Why Are We Hesitant About CSGP?
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 23.6 percentage points
- Earnings per share fell by 5% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- 23.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $76 per share, CoStar trades at 71.6x forward P/E. Check out our free in-depth research report to learn more about why CSGP doesn’t pass our bar.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
