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. Keeping that in mind, here are three cash-burning companies that don’t make the cut and some better opportunities instead.
Under Armour (UAA)
Trailing 12-Month Free Cash Flow Margin: -2.9%
Founded in 1996 by a former University of Maryland football player, Under Armour (NYSE: UAA) is an apparel brand specializing in sportswear designed to improve athletic performance.
Why Should You Dump UAA?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Sales are projected to tank by 3.5% over the next 12 months as its demand continues evaporating
- Low returns on capital reflect management’s struggle to allocate funds effectively
Under Armour is trading at $5.93 per share, or 18.4x forward P/E. To fully understand why you should be careful with UAA, check out our full research report (it’s free).
Bally's (BALY)
Trailing 12-Month Free Cash Flow Margin: -3.5%
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 Do We Steer Clear of BALY?
- Annual revenue growth of 4.2% over the last two years was below our standards for the consumer discretionary sector
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $12.62 per share, Bally's trades at 1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including BALY in your portfolio.
LGI Homes (LGIH)
Trailing 12-Month Free Cash Flow Margin: -8.2%
Based in Texas, LGI Homes (NASDAQ: LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.
Why Do We Think LGIH Will Underperform?
- Average backlog growth of 4.9% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- Diminishing returns on capital suggest its earlier profit pools are drying up
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
LGI Homes’s stock price of $55.93 implies a valuation ratio of 7.2x forward P/E. To fully understand why you should be careful with LGIH, check out our full research report (it’s free).
Stocks That Overcame Trump’s 2018 Tariffs
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
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