3 Cash-Burning Stocks We're Skeptical Of

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.

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 that don’t make the cut and some better opportunities instead.

NN (NNBR)

Trailing 12-Month Free Cash Flow Margin: -2.1%

Formerly known as Nuturn, NN (NASDAQ:NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.

Why Do We Think NNBR Will Underperform?

1. Annual sales declines of 6.6% for the past two years show its products and services struggled to connect with the market during this cycle
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

NN is trading at $2.34 per share, or 65.7x forward P/E. Check out our free in-depth research report to learn more about why NNBR doesn’t pass our bar.

Integra LifeSciences (IART)

Trailing 12-Month Free Cash Flow Margin: -2.3%

Founded in 1989 as a pioneer in regenerative medicine technology, Integra LifeSciences (NASDAQ:IART) develops and manufactures medical technologies for neurosurgery, wound care, and surgical reconstruction, including regenerative tissue products and surgical instruments.

Why Do We Avoid IART?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 7.7 percentage points
3. Free cash flow margin shrank by 21 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Integra LifeSciences’s stock price of $15.68 implies a valuation ratio of 6.3x forward P/E. To fully understand why you should be careful with IART, check out our full research report (it’s free).

NeoGenomics (NEO)

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

Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ:NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.

Why Do We Pass on NEO?

1. Subscale operations are evident in its revenue base of $689.2 million, meaning it has fewer distribution channels than its larger rivals
2. Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $8.29 per share, NeoGenomics trades at 36x forward P/E. Dive into our free research report to see why there are better opportunities than NEO.

Stocks We Like More

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