Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
Negative cash flow can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. Keeping that in mind, here are three cash-burning companies to avoid and some better opportunities instead.
Penguin Solutions (PENG)
Trailing 12-Month Free Cash Flow Margin: -4.6%
Based in the US, Penguin Solutions (NASDAQ: PENG) is a diversified semiconductor company offering memory, digital, and LED products.
Why Are We Hesitant About PENG?
- Muted 2.5% annual revenue growth over the last five years shows its demand lagged behind its semiconductor peers
- Gross margin of 28.3% reflects its high production costs
- Low free cash flow margin of 3% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Penguin Solutions is trading at $59.65 per share, or 18.3x forward P/E. If you’re considering PENG for your portfolio, see our FREE research report to learn more.
Shoals (SHLS)
Trailing 12-Month Free Cash Flow Margin: -14.5%
Started in Huntsville, Alabama, Shoals (NASDAQ: SHLS) designs and manufactures products that make solar energy systems work more efficiently.
Why Does SHLS Give Us Pause?
- Annual revenue growth of 6.2% over the last two years was below our standards for the industrials sector
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.5 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $10.42 per share, Shoals trades at 22.5x forward P/E. Check out our free in-depth research report to learn more about why SHLS doesn’t pass our bar.
Bunge Global (BG)
Trailing 12-Month Free Cash Flow Margin: -1.4%
With origins dating back to 1818 and operations spanning both hemispheres to balance seasonal harvests, Bunge Global (NYSE: BG) is an agribusiness and food company that processes oilseeds, grains, and other agricultural commodities into vegetable oils, protein meals, flours, and specialty ingredients.
Why Are We Wary of BG?
- Annual sales growth of 6.5% over the last three years lagged behind its consumer staples peers as its large revenue base made it difficult to generate incremental demand
- Earnings per share fell by 17% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Bunge Global’s stock price of $123.92 implies a valuation ratio of 12x forward P/E. Dive into our free research report to see why there are better opportunities than BG.
Stocks We Like More
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