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.
Tilly's (TLYS)
Trailing 12-Month Free Cash Flow Margin: -2.4%
With an emphasis on skate and surf culture, Tilly’s (NYSE: TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.
Why Do We Think TLYS Will Underperform?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
Tilly's is trading at $1.46 per share, or 0.1x forward price-to-sales. If you’re considering TLYS for your portfolio, see our FREE research report to learn more.
1-800-FLOWERS (FLWS)
Trailing 12-Month Free Cash Flow Margin: -2.5%
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?
- Products and services have few die-hard fans as sales have declined by 3.1% annually over the last five years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 11× could force the company to raise capital at unfavorable terms if market conditions deteriorate
1-800-FLOWERS’s stock price of $4.03 implies a valuation ratio of 0.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than FLWS.
Myriad Genetics (MYGN)
Trailing 12-Month Free Cash Flow Margin: -2%
Founded in 1991 as one of the pioneers in translating genetic discoveries into clinical applications, Myriad Genetics (NASDAQ: MYGN) develops genetic tests that assess disease risk, guide treatment decisions, and provide insights across oncology, women's health, and mental health.
Why Do We Avoid MYGN?
- Sales trends were unexciting over the last two years as its 6% annual growth was below the typical healthcare company
- Push for growth has led to negative returns on capital, signaling value destruction, and its shrinking returns suggest its past profit sources are losing steam
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $5.13 per share, Myriad Genetics trades at 181.2x forward P/E. Read our free research report to see why you should think twice about including MYGN in your portfolio.
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