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 that don’t make the cut and some better opportunities instead.
Hertz (HTZ)
Trailing 12-Month Free Cash Flow Margin: -3.3%
Started with a dozen Model T Fords, Hertz (NASDAQ:HTZ) is a global car rental company providing vehicle rental services to leisure and business travelers.
Why Should You Dump HTZ?
- Annual sales declines of 3.8% 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
Hertz is trading at $1.86 per share, or 109.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than HTZ.
Comstock Resources (CRK)
Trailing 12-Month Free Cash Flow Margin: -33.9%
Operating in the Haynesville shale where a single well can produce millions of cubic feet of gas daily, Comstock Resources (NYSE:CRK) drills for and produces natural gas from underground shale rock formations in Louisiana and Texas.
Why Do We Steer Clear of CRK?
- Muted 5.7% annual revenue growth over the last five years shows its demand lagged behind its energy upstream and integrated energy peers
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 6.1 percentage points
- Cash-burning history makes us doubt the long-term viability of its business model
Comstock Resources’s stock price of $13.40 implies a valuation ratio of 21.4x forward P/E. To fully understand why you should be careful with CRK, check out our full research report (it’s free).
Seadrill (SDRL)
Trailing 12-Month Free Cash Flow Margin: -6.9%
Operating in water depths reaching 12,000 feet below the surface, Seadrill (NYSE:SDRL) owns and operates drillships and semi-submersible rigs that drill oil and gas wells in deepwater offshore locations.
Why Should You Sell SDRL?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 9.6% annually over the last ten years
- Gross margin of 34.8% is below its competitors, leaving less money to invest in exploration and production
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $41.80 per share, Seadrill trades at 24.7x forward P/E. Check out our free in-depth research report to learn more about why SDRL doesn’t pass our bar.
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