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.
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.
Byrna (BYRN)
Trailing 12-Month Free Cash Flow Margin: -6.5%
Providing civilians with tools to disable, disarm, and deter would-be assailants, Byrna (NASDAQ: BYRN) is a provider of non-lethal weapons.
Why Does BYRN Worry Us?
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Negative returns on capital show management lost money while trying to expand the business
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $6.44 per share, Byrna trades at 55.7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including BYRN in your portfolio.
Ducommun (DCO)
Trailing 12-Month Free Cash Flow Margin: -5.9%
California’s oldest company, Ducommun (NYSE: DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Should You Sell DCO?
- Backlog has dropped by 16% on average over the past two years, suggesting it’s losing orders as competition picks up
- Efficiency has decreased over the last five years as its operating margin fell by 11.5 percentage points
- Low free cash flow margin of -0.6% declined over the last five years as its investments ramped, giving it little breathing room
Ducommun is trading at $140.64 per share, or 32.3x forward P/E. Check out our free in-depth research report to learn more about why DCO doesn’t pass our bar.
Bausch + Lomb (BLCO)
Trailing 12-Month Free Cash Flow Margin: -1.3%
With a nearly 170-year history dedicated to vision care and eye health innovation, Bausch + Lomb (NYSE: BLCO) develops and manufactures a comprehensive range of eye health products including contact lenses, pharmaceuticals, surgical devices, and consumer eye care solutions.
Why Does BLCO Give Us Pause?
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
- 19.4 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
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Bausch + Lomb’s stock price of $16.04 implies a valuation ratio of 21.3x forward P/E. If you’re considering BLCO for your portfolio, see our FREE research report to learn more.
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