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

Portillo's (PTLO)

Trailing 12-Month Free Cash Flow Margin: -1.2%

Begun as a Chicago hot dog stand in 1963, Portillo’s (NASDAQ: PTLO) is a casual restaurant chain that serves Chicago-style hot dogs and beef sandwiches as well as fries and shakes.

Why Do We Pass on PTLO?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.8% for the last two years
3. 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Portillo’s stock price of $3.89 implies a valuation ratio of 19.2x forward P/E. Read our free research report to see why you should think twice about including PTLO in your portfolio.

First Watch (FWRG)

Trailing 12-Month Free Cash Flow Margin: -1.6%

Based on a nautical reference to the first work shift aboard a ship, First Watch (NASDAQ: FWRG) is a chain of breakfast and brunch restaurants whose menu is heavily-focused on eggs and griddle items such as pancakes.

Why Does FWRG Give Us Pause?

1. Cash-burning history makes us doubt the long-term viability of its business model
2. Underwhelming 4.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

First Watch is trading at $10.57 per share, or 52.1x forward P/E. If you’re considering FWRG for your portfolio, see our FREE research report to learn more.

Atlas Energy Solutions (AESI)

Trailing 12-Month Free Cash Flow Margin: -17.2%

Building the world's first long-haul proppant conveyor system to reduce truck traffic, Atlas Energy Solutions (NYSE: AESI) mines and processes sand used as proppant to prop open fractures in oil and gas wells during hydraulic fracturing.

Why Are We Out on AESI?

1. Efficiency has decreased over the last five years as its EBITDA margin fell by 38.5 percentage points
2. Negative free cash flow raises questions about the return timeline for its investments
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

At $13.64 per share, Atlas Energy Solutions trades at 10.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than AESI.

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