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.
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. Keeping that in mind, here is one high-risk, high-reward company with the potential to scale into a market leader and two to leave off your radar.
Two Stocks to Sell:
Trinity (TRN)
Trailing 12-Month Free Cash Flow Margin: -20.2%
Operating under the trade name TrinityRail, Trinity (NYSE: TRN) is a provider of railcar products and services in North America.
Why Are We Cautious About TRN?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 27.8% declines over the past two years
- Sales are projected to be flat over the next 12 months and imply weak demand
- Free cash flow margin shrank by 22.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $29.51 per share, Trinity trades at 1.2x trailing 12-month price-to-sales. Check out our free in-depth research report to learn more about why TRN doesn’t pass our bar.
RadNet (RDNT)
Trailing 12-Month Free Cash Flow Margin: -2.3%
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 Does RDNT Fall Short?
- Modest revenue base of $2.04 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 3 percentage points
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.7% for the last five years
RadNet’s stock price of $60.50 implies a valuation ratio of 101.8x forward P/E. To fully understand why you should be careful with RDNT, check out our full research report (it’s free).
One Stock to Watch:
Vital Farms (VITL)
Trailing 12-Month Free Cash Flow Margin: -6.4%
With an emphasis on ethically produced products, Vital Farms (NASDAQ: VITL) specializes in pasture-raised eggs and butter.
Why Are We Fans of VITL?
- Products are selling at a rapid clip as its unit sales averaged an outstanding 25.3% growth rate over the past two years
- Expected revenue growth of 19.1% for the next year suggests its market share will rise
- Earnings growth has massively outpaced its peers over the last three years as its EPS has compounded at 288% annually
Vital Farms is trading at $17.60 per share, or 13.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
