3 Cash-Burning Stocks with Questionable Fundamentals

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. Keeping that in mind, here are three cash-burning companies to steer clear of and a few better alternatives.

Baldwin Insurance Group (BWIN)

Trailing 12-Month Free Cash Flow Margin: -4.6%

Rebranded from BRP Group in May 2024, Baldwin Insurance Group (NASDAQ:BWIN) is an independent insurance distribution company that provides tailored insurance, risk management, and employee benefits solutions to businesses and individuals.

Why Does BWIN Give Us Pause?

1. Free cash flow margin shrank by 9.4 percentage points over the last five years, suggesting the company stepped up its investments to maintain its competitive edge
2. 9× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Baldwin Insurance Group is trading at $21.40 per share, or 11x forward P/E. To fully understand why you should be careful with BWIN, check out our full research report (it’s free).

Insperity (NSP)

Trailing 12-Month Free Cash Flow Margin: -4.5%

Pioneering the professional employer organization (PEO) industry it helped establish, Insperity (NYSE:NSP) provides human resources outsourcing services to small and medium-sized businesses, handling payroll, benefits, compliance, and HR administration.

Why Do We Avoid NSP?

1. Muted 2.5% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 26% annually
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.1 percentage points

Insperity’s stock price of $25.05 implies a valuation ratio of 11.9x forward P/E. Dive into our free research report to see why there are better opportunities than NSP.

Comstock Resources (CRK)

Trailing 12-Month Free Cash Flow Margin: -31.4%

Operating in the Haynesville shale where a single well can produce millions of cubic feet of gas daily, Comstock Resources (NYSE:CRK) drills for and produces natural gas from underground shale rock formations in Louisiana and Texas.

Why Is CRK Risky?

1. Annual revenue growth of 7.4% over the last five years was below our standards for the energy upstream and integrated energy sector
2. Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 4.5 percentage points
3. Cash burn makes us question whether it can achieve sustainable long-term growth

At $17.71 per share, Comstock Resources trades at 19x forward P/E. Check out our free in-depth research report to learn more about why CRK doesn’t pass our bar.

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