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.
Not all companies are worth the risk, and that’s why we built StockStory - to help you spot the red flags. Keeping that in mind, here are three cash-burning companies to steer clear of and a few better alternatives.
Matthews (MATW)
Trailing 12-Month Free Cash Flow Margin: -5.9%
Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.
Why Should You Dump MATW?
- Annual sales declines of 1.9% for the past five years show its products and services struggled to connect with the market
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $24.49 per share, Matthews trades at 0.6x trailing 12-month price-to-sales. If you’re considering MATW for your portfolio, see our FREE research report to learn more.
3D Systems (DDD)
Trailing 12-Month Free Cash Flow Margin: -25.3%
Founded by the inventor of stereolithography, 3D Systems (NYSE: DDD) engineers, manufactures, and sells 3D printers and other related products to the aerospace, automotive, healthcare, and consumer goods industries.
Why Do We Pass on DDD?
- Annual sales declines of 7% for the past five years show its products and services struggled to connect with the market during this cycle
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
3D Systems is trading at $2.04 per share, or 0.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DDD.
NN (NNBR)
Trailing 12-Month Free Cash Flow Margin: -1.7%
Formerly known as Nuturn, NN (NASDAQ: NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Why Are We Out on NNBR?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Cash-burning history makes us doubt the long-term viability of its business model
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
NN’s stock price of $1.50 implies a valuation ratio of 23.8x forward P/E. To fully understand why you should be careful with NNBR, check out our full research report (it’s free).
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