3 Cash-Burning Stocks with Warning Signs

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.

Not all companies are worth the risk, and that’s why we built StockStory - to help you spot the red flags. Keeping that in mind, here are three cash-burning companies to avoid and some better opportunities instead.

MarineMax (HZO)

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

Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE:HZO) sells boats, yachts, and other marine products.

Why Are We Cautious About HZO?

1. Store closures and poor same-store sales reveal weak demand and a push toward operational efficiency
2. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

MarineMax’s stock price of $23.90 implies a valuation ratio of 15.1x forward P/E. Check out our free in-depth research report to learn more about why HZO doesn’t pass our bar.

Tilray (TLRY)

Trailing 12-Month Free Cash Flow Margin: -10.7%

Founded in 2013, Tilray Brands (NASDAQ:TLRY) engages in cannabis research, cultivation, and distribution, offering a range of medical and recreational cannabis products, hemp-based foods, and alcoholic beverages.

Why Are We Out on TLRY?

1. Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 248.3 percentage points
2. Cash burn has widened over the last year, making us question whether it can reliably generate shareholder value
3. Negative returns on capital show management lost money while trying to expand the business, and its falling returns suggest its earlier profit pools are drying up

At $1.67 per share, Tilray trades at 27.3x forward EV-to-EBITDA. If you’re considering TLRY for your portfolio, see our FREE research report to learn more.

Moderna (MRNA)

Trailing 12-Month Free Cash Flow Margin: -113%

Rising to global prominence during the COVID-19 pandemic with one of the first effective vaccines, Moderna (NASDAQ:MRNA) develops messenger RNA (mRNA) medicines that direct the body's cells to produce proteins with therapeutic or preventive benefits for various diseases.

Why Should You Sell MRNA?

1. Annual sales declines of 46.3% for the past two years show its products and services struggled to connect with the market during this cycle
2. 242.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Moderna is trading at $26.50 per share, or 5.5x forward price-to-sales. To fully understand why you should be careful with MRNA, check out our full research report (it’s free for active Edge members).

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