3 Cash-Burning Stocks with Questionable Fundamentals

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.

Caleres (CAL)

Trailing 12-Month Free Cash Flow Margin: -1.2%

The owner of Dr. Scholl's, Caleres (NYSE:CAL) is a footwear company offering a range of styles.

Why Should You Dump CAL?

1. Products and services have few die-hard fans as sales have declined by 3.6% annually over the last two years
2. Low free cash flow margin of 2% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Caleres is trading at $14.99 per share, or 5.7x forward P/E. Dive into our free research report to see why there are better opportunities than CAL.

WideOpenWest (WOW)

Trailing 12-Month Free Cash Flow Margin: -8.1%

Initially started in Denver as a cable television provider, WideOpenWest (NYSE:WOW) provides high-speed internet, cable, and telephone services to the Midwest and Southeast regions of the U.S.

Why Do We Think WOW Will Underperform?

1. Number of subscribers has disappointed over the past two years, indicating weak demand for its offerings
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $5.22 per share, WideOpenWest trades at 1.6x forward EV-to-EBITDA. To fully understand why you should be careful with WOW, check out our full research report (it’s free).

Sunrun (RUN)

Trailing 12-Month Free Cash Flow Margin: -38.2%

Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ:RUN) provides residential solar electricity, specializing in panel installation and leasing services.

Why Does RUN Worry Us?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 6.2% annually over the last two years
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Sunrun’s stock price of $16.26 implies a valuation ratio of 22.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why RUN doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

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