Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
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.
Universal Logistics (ULH)
Trailing 12-Month Free Cash Flow Margin: -2.6%
Founded in 1932, Universal Logistics (NASDAQ: ULH) is a provider of customized transportation and logistics solutions operating throughout the United States and in Mexico, Canada, and Colombia.
Why Do We Pass on ULH?
- Annual sales declines of 3.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Diminishing returns on capital suggest its earlier profit pools are drying up
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $22.35 per share, Universal Logistics trades at 21.9x forward P/E. If you’re considering ULH for your portfolio, see our FREE research report to learn more.
Enviri (NVRI)
Trailing 12-Month Free Cash Flow Margin: -1.8%
Cooling America’s first indoor ice rink in the 19th century, Enviri (NYSE: NVRI) offers steel and waste handling services.
Why Do We Steer Clear of NVRI?
- Annual sales declines of 2.7% for the past two years show its products and services struggled to connect with the market during this cycle
- Negative free cash flow raises questions about the return timeline for its investments
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Enviri’s stock price of $19.64 implies a valuation ratio of 10.7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including NVRI in your portfolio.
DHT Holdings (DHT)
Trailing 12-Month Free Cash Flow Margin: -9%
With each vessel capable of carrying roughly 2 million barrels of oil—enough to fill about 125 Olympic swimming pools—DHT Holdings (NYSE: DHT) operates very large crude carriers that transport crude oil across international routes for energy companies and traders.
Why Does DHT Fall Short?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 7.6% annually over the last five years
- Modest revenue base of $370.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Gross margin of 30.9% reflects its high production costs and unfavorable asset base
DHT Holdings is trading at $18.18 per share, or 9.4x forward P/E. To fully understand why you should be careful with DHT, check out our full research report (it’s free).
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