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 that don’t make the cut and some better opportunities instead.
Trinity (TRN)
Trailing 12-Month Free Cash Flow Margin: -17.5%
Operating under the trade name TrinityRail, Trinity (NYSE: TRN) is a provider of railcar products and services in North America.
Why Does TRN Give Us Pause?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 24.9% declines over the past two years
- Sales are projected to be flat over the next 12 months and imply weak demand
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Trinity’s stock price of $27.93 implies a valuation ratio of 15.8x forward P/E. Check out our free in-depth research report to learn more about why TRN doesn’t pass our bar.
Genco (GNK)
Trailing 12-Month Free Cash Flow Margin: -52.8%
Headquartered in NYC, Genco (NYSE: GNK) is a shipping company that transports dry bulk cargo along worldwide maritime routes.
Why Do We Think GNK Will Underperform?
- Number of owned vessels has disappointed over the past two years, indicating weak demand for its offerings
- Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
- Free cash flow margin dropped by 81.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $26.25 per share, Genco trades at 11.4x forward P/E. Dive into our free research report to see why there are better opportunities than GNK.
Acadia Healthcare (ACHC)
Trailing 12-Month Free Cash Flow Margin: -4%
With a network of over 250 facilities serving patients in 38 states and Puerto Rico, Acadia Healthcare (NASDAQ: ACHC) operates facilities providing mental health and substance use disorder treatment services across the United States.
Why Do We Steer Clear of ACHC?
- Underwhelming admissions over the past two years imply it may need to invest in improvements to get back on track
- Earnings per share fell by 12.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Acadia Healthcare is trading at $28.11 per share, or 16.4x forward P/E. To fully understand why you should be careful with ACHC, check out our full research report (it’s free).
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