Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
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 to steer clear of and a few better alternatives.
Camping World (CWH)
Trailing 12-Month Free Cash Flow Margin: -1.7%
Founded in 1966 as a single recreational vehicle (RV) dealership, Camping World (NYSE: CWH) still sells RVs along with boats and general merchandise for outdoor activities.
Why Do We Steer Clear of CWH?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 73.3% annually, worse than its revenue
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Camping World is trading at $6.11 per share, or 8.2x forward P/E. Read our free research report to see why you should think twice about including CWH in your portfolio.
Array (AD)
Trailing 12-Month Free Cash Flow Margin: -9%
Operating as a majority-owned subsidiary of Telephone and Data Systems since its founding in 1983, Array (NYSE: AD) is a regional wireless telecommunications provider serving 4.6 million customers across 21 states with mobile phone, internet, and IoT services.
Why Do We Pass on AD?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 23.5% annually over the last five years
- 15 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Array’s stock price of $33.96 implies a valuation ratio of 19.2x forward EV-to-EBITDA. To fully understand why you should be careful with AD, check out our full research report (it’s free).
Kosmos Energy (KOS)
Trailing 12-Month Free Cash Flow Margin: -5.1%
Operating in some of the world's deepest waters with projects located up to 120 kilometers offshore, Kosmos Energy (NYSE: KOS) explores for, develops, and produces oil and natural gas from deepwater offshore fields.
Why Does KOS Worry Us?
- Revenue base of $1.37 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Efficiency has decreased over the last five years as its EBITDA margin fell by 11.9 percentage points
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $2.44 per share, Kosmos Energy trades at 7.9x forward P/E. If you’re considering KOS for your portfolio, see our FREE research report to learn more.
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