3 Cash-Burning Stocks We Think Twice About

Companies that burn cash at a rapid pace can run into serious trouble if they fail to secure funding. Without a clear path to profitability, these businesses risk dilution, mounting debt, or even bankruptcy.

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.

Vishay Intertechnology (VSH)

Trailing 12-Month Free Cash Flow Margin: -2.8%

Named after the founder's ancestral village in present-day Lithuania, Vishay Intertechnology (NYSE:VSH) manufactures simple chips and electronic components that are building blocks of virtually all types of electronic devices.

Why Are We Out on VSH?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.3% annually over the last two years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 51.9% annually
3. Cash-burning history and the downward spiral in its margin profile make us wonder if it has a viable business model

At $42.56 per share, Vishay Intertechnology trades at 1.5x forward price-to-sales. To fully understand why you should be careful with VSH, check out our full research report (it’s free).

Rumble (RUM)

Trailing 12-Month Free Cash Flow Margin: -75.8%

Founded in 2013 as a champion for content creator rights and free expression, Rumble (NASDAQ:RUM) is a video sharing platform that positions itself as a free speech alternative to mainstream platforms, offering creators more favorable revenue-sharing opportunities.

Why Are We Hesitant About RUM?

1. Subscale operations are evident in its revenue base of $102.4 million, meaning it has fewer distribution channels than its larger rivals (but more room for growth)
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Unprofitable operations could lead to additional rounds of dilutive equity financing if the credit window closes

Rumble is trading at $8.07 per share, or 18.8x trailing 12-month price-to-sales. If you’re considering RUM for your portfolio, see our FREE research report to learn more.

Peabody Energy (BTU)

Trailing 12-Month Free Cash Flow Margin: -4.7%

Beginning with a single wagon hauling coal in Illinois back when Grover Cleveland was president, Peabody Energy (NYSE:BTU) mines coal used by electricity generators and steel manufacturers.

Why Do We Avoid BTU?

1. Sales tumbled by 2.7% annually over the last ten years, showing market trends are working against its favor during this cycle
2. Costly operations and weak unit economics result in an inferior gross margin of 24.9% that must be offset through higher production volumes
3. Efficiency has decreased over the last five years as its EBITDA margin fell by 25.1 percentage points

Peabody Energy’s stock price of $24.65 implies a valuation ratio of 3.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including BTU in your portfolio.

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