3 Cash-Burning Stocks We Think Twice About

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. That said, here are three cash-burning companies to steer clear of and a few better alternatives.

America's Car-Mart (CRMT)

Trailing 12-Month Free Cash Flow Margin: -3.1%

With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ:CRMT) sells used cars to budget-conscious consumers.

Why Do We Steer Clear of CRMT?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Earnings per share have contracted by 38.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

America's Car-Mart is trading at $31.86 per share, or 7.8x forward P/E. Read our free research report to see why you should think twice about including CRMT in your portfolio.

Liberty Broadband (LBRDK)

Trailing 12-Month Free Cash Flow Margin: -4.7%

Operating across the United States, Liberty Broadband (NASDAQ:LBRDK) is a provider of high-speed internet, cable television, and telecommunications services across various markets.

Why Does LBRDK Fall Short?

1. Annual revenue growth of 3.1% over the last two years was below our standards for the business services sector
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

At $60.51 per share, Liberty Broadband trades at 49.2x forward EV-to-EBITDA. If you’re considering LBRDK for your portfolio, see our FREE research report to learn more.

Clarus (CLAR)

Trailing 12-Month Free Cash Flow Margin: -3.8%

Initially a financial services business, Clarus (NASDAQ:CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.

Why Are We Out on CLAR?

1. Products and services aren't resonating with the market as its revenue declined by 10.6% annually over the last two years
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Clarus’s stock price of $3.71 implies a valuation ratio of 22.8x forward P/E. Dive into our free research report to see why there are better opportunities than CLAR.

Stocks We Like More

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