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.

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. That said, here are three cash-burning companies that don’t make the cut and some better opportunities instead.

Matthews (MATW)

Trailing 12-Month Free Cash Flow Margin: -8.2%

Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.

Why Should You Dump MATW?

1. Products and services aren't resonating with the market as its revenue declined by 5% annually over the last five years
2. Negative free cash flow raises questions about the return timeline for its investments
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Matthews is trading at $27.32 per share, or 0.7x trailing 12-month price-to-sales. If you’re considering MATW for your portfolio, see our FREE research report to learn more.

GEO Group (GEO)

Trailing 12-Month Free Cash Flow Margin: -1.1%

With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE: GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.

Why Does GEO Worry Us?

1. 3.3% annual revenue growth over the last five years was slower than its business services peers
2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 4 percentage points
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 11.1 percentage points

GEO Group’s stock price of $22.98 implies a valuation ratio of 1x forward price-to-sales. Check out our free in-depth research report to learn more about why GEO doesn’t pass our bar.

Oracle (ORCL)

Trailing 12-Month Free Cash Flow Margin: -38.6%

Starting as a database company in 1977 and now powering mission-critical systems across the globe, Oracle (NYSE: ORCL) provides enterprise software and hardware products and services that help businesses manage their information technology needs.

Why Does ORCL Fall Short?

1. Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 10.1% for the last five years
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

At $196.49 per share, Oracle trades at 6.7x forward price-to-sales. To fully understand why you should be careful with ORCL, check out our full research report (it’s free).

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