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. Keeping that in mind, here are three cash-burning companies that don’t make the cut and some better opportunities instead.
1-800-FLOWERS (FLWS)
Trailing 12-Month Free Cash Flow Margin: -4%
Founded in 1976, 1-800-FLOWERS (NASDAQ: FLWS) is an online retailer of flowers, gifts, and gourmet foods, serving customers globally.
Why Is FLWS Risky?
- Annual revenue declines of 8.6% over the last two years indicate problems with its market positioning
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
1-800-FLOWERS is trading at $4.76 per share, or 14.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why FLWS doesn’t pass our bar.
Fortrea (FTRE)
Trailing 12-Month Free Cash Flow Margin: -3.8%
Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ: FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.
Why Do We Think FTRE Will Underperform?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.6% annually over the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $10.80 per share, Fortrea trades at 17.5x forward P/E. To fully understand why you should be careful with FTRE, check out our full research report (it’s free for active Edge members).
Insperity (NSP)
Trailing 12-Month Free Cash Flow Margin: -1.4%
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 Are We Cautious About NSP?
- Sales trends were unexciting over the last two years as its 3.2% annual growth was below the typical business services company
- Earnings per share fell by 13.2% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Insperity’s stock price of $46.36 implies a valuation ratio of 18.3x forward P/E. Dive into our free research report to see why there are better opportunities than NSP.
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