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. That said, here are three cash-burning companies that don’t make the cut and some better opportunities instead.
Redwire (RDW)
Trailing 12-month free cash flow margin: -31.6%
Based in Jacksonville, Florida, Redwire (NYSE: RDW) is a provider of systems and components used in space infrastructure.
Why Do We Think Twice About RDW?
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 9 percentage points
- Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
- 9.4 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
Redwire is trading at $6.28 per share, or 3.6x forward price-to-sales. If you’re considering RDW for your portfolio, see our FREE research report to learn more.
AerSale (ASLE)
Trailing 12-month free cash flow margin: -12.6%
Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ: ASLE) delivers full-service support to mid-life commercial aircraft.
Why Do We Avoid ASLE?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3% annually over the last two years
- 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
At $4.61 per share, AerSale trades at 18.1x forward P/E. Dive into our free research report to see why there are better opportunities than ASLE.
Centrus Energy (LEU)
Trailing 12-month free cash flow margin: -65%
Operating the only active U.S. facility licensed to produce high-assay low-enriched uranium (HALEU) for next-generation reactors, Centrus Energy (NYSE: LEU) supplies enriched uranium, the fissile component needed to produce fuel for nuclear power reactors.
Why Do We Steer Clear of LEU?
- Muted 8.5% annual revenue growth over the last five years shows its demand lagged behind its energy upstream and integrated energy peers
- Efficiency has decreased over the last five years as its EBITDA margin fell by 26.5 percentage points
- Cash-burning history makes us doubt the long-term viability of its business model
Centrus Energy’s stock price of $89.44 implies a valuation ratio of 21.7x forward P/E. Check out our free in-depth research report to learn more about why LEU doesn’t pass our bar.
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