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.
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 to steer clear of and a few better alternatives.
eHealth (EHTH)
Trailing 12-Month Free Cash Flow Margin: -4.7%
Aiming to address a high-stakes and often confusing decision, eHealth (NASDAQ: EHTH) guides consumers through health insurance enrollment and related topics.
Why Do We Think Twice About EHTH?
- Value proposition isn’t resonating strongly as its estimated membership averaged 1.8% drops over the last two years
- Projected sales decline of 3.4% for the next 12 months points to a tough demand environment ahead
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $4.21 per share, eHealth trades at 2.8x forward EV/EBITDA. Check out our free in-depth research report to learn more about why EHTH doesn’t pass our bar.
Methode Electronics (MEI)
Trailing 12-Month Free Cash Flow Margin: -2.4%
Founded in 1946, Methode Electronics (NYSE: MEI) is a global supplier of custom-engineered solutions for Original Equipment Manufacturers (OEMs).
Why Do We Think MEI Will Underperform?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Free cash flow margin shrank by 19.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Methode Electronics is trading at $7.97 per share, or 11.7x forward P/E. Dive into our free research report to see why there are better opportunities than MEI.
Purple (PRPL)
Trailing 12-Month Free Cash Flow Margin: -6.5%
Founded by two brothers, Purple (NASDAQ: PRPL) creates sleep and home comfort products such as mattresses, pillows, and bedding accessories.
Why Is PRPL Risky?
- Products and services have few die-hard fans as sales have declined by 6.3% annually over the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Purple’s stock price of $0.81 implies a valuation ratio of 26.6x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including PRPL in your portfolio.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
