While some companies burn cash to fuel expansion, others struggle to turn spending into sustainable growth. A high cash burn rate without a strong balance sheet can leave investors exposed to significant downside.
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.
NN (NNBR)
Trailing 12-Month Free Cash Flow Margin: -2.1%
Formerly known as Nuturn, NN (NASDAQ:NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Why Do We Think NNBR Will Underperform?
- Annual sales declines of 6.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Cash-burning history makes us doubt the long-term viability of its business model
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
NN is trading at $2.34 per share, or 65.7x forward P/E. Check out our free in-depth research report to learn more about why NNBR doesn’t pass our bar.
Integra LifeSciences (IART)
Trailing 12-Month Free Cash Flow Margin: -2.3%
Founded in 1989 as a pioneer in regenerative medicine technology, Integra LifeSciences (NASDAQ:IART) develops and manufactures medical technologies for neurosurgery, wound care, and surgical reconstruction, including regenerative tissue products and surgical instruments.
Why Do We Avoid IART?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 7.7 percentage points
- Free cash flow margin shrank by 21 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Integra LifeSciences’s stock price of $15.68 implies a valuation ratio of 6.3x forward P/E. To fully understand why you should be careful with IART, check out our full research report (it’s free).
NeoGenomics (NEO)
Trailing 12-Month Free Cash Flow Margin: -2.8%
Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ:NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.
Why Do We Pass on NEO?
- Subscale operations are evident in its revenue base of $689.2 million, meaning it has fewer distribution channels than its larger rivals
- Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $8.29 per share, NeoGenomics trades at 36x forward P/E. Dive into our free research report to see why there are better opportunities than NEO.
Stocks We Like More
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