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.
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.
Perma-Fix (PESI)
Trailing 12-Month Free Cash Flow Margin: -30.7%
Tackling hazardous waste challenges since 1990, Perma-Fix (NASDAQ: PESI) provides environmental waste treatment services.
Why Is PESI Risky?
- Annual sales declines of 4.3% for the past five years show its products and services struggled to connect with the market during this cycle
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Perma-Fix is trading at $8.31 per share, or 1.7x forward price-to-sales. Read our free research report to see why you should think twice about including PESI in your portfolio.
Skillz (SKLZ)
Trailing 12-Month Free Cash Flow Margin: -10.4%
Taking a new twist at video gaming, Skillz (NYSE: SKLZ) offers developers a platform to create and distribute mobile games where players can pay fees to compete for cash prizes.
Why Do We Think SKLZ Will Underperform?
- Paying Monthly Active Users have declined by 41.7% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive
- EBITDA profits fell over the last few years as its sales dropped and it struggled to adjust its fixed costs
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Skillz’s stock price of $4.58 implies a valuation ratio of 1.1x forward price-to-gross profit. If you’re considering SKLZ for your portfolio, see our FREE research report to learn more.
SolarEdge (SEDG)
Trailing 12-Month Free Cash Flow Margin: -46.8%
Established in 2006, SolarEdge (NASDAQ: SEDG) creates advanced systems to improve the efficiency of solar panels.
Why Do We Pass on SEDG?
- Performance surrounding its megawatts shipped has lagged its peers
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $12.43 per share, SolarEdge trades at 0.7x forward price-to-sales. To fully understand why you should be careful with SEDG, check out our full research report (it’s free).
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
