3 Cash-Burning Stocks with Warning Signs

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.

Not all companies are worth the risk, and that’s why we built StockStory - to help you spot the red flags. That said, here are three cash-burning companies to steer clear of and a few better alternatives.

Funko (FNKO)

Trailing 12-Month Free Cash Flow Margin: -1.7%

Boasting partnerships with media franchises like Marvel and One Piece, Funko (NASDAQ:FNKO) is a company specializing in creating and distributing licensed pop culture collectibles.

Why Do We Think FNKO Will Underperform?

1. Annual sales declines of 9.7% for the past two years show its products and services struggled to connect with the market
2. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Funko’s stock price of $3.03 implies a valuation ratio of 3.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than FNKO.

LGI Homes (LGIH)

Trailing 12-Month Free Cash Flow Margin: -7.8%

Based in Texas, LGI Homes (NASDAQ:LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.

Why Should You Dump LGIH?

1. Backlog has dropped by 10.4% on average over the past two years, suggesting it’s losing orders as competition picks up
2. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $45.92 per share, LGI Homes trades at 11.3x forward P/E. To fully understand why you should be careful with LGIH, check out our full research report (it’s free for active Edge members).

Strategy (MSTR)

Trailing 12-Month Free Cash Flow Margin: -28.9%

Once a traditional business intelligence software provider, Strategy (NASDAQ:MSTR) develops AI-powered enterprise analytics software while also functioning as a major corporate holder of Bitcoin cryptocurrency.

Why Should You Sell MSTR?

1. MicroStrategy’s core analytics software has been eclipsed by its all-in Bitcoin strategy, leaving product innovation and enterprise deals starved for attention
2. The company’s debt-financed Bitcoin buying ties shareholder fortunes to crypto swings and interest rates, amplifying downside risk and uncertainty
3. On the bright side, its vast Bitcoin treasury gives Executive Chairman Michael Saylor a unique springboard to capture crypto upside and court investors seeking leveraged exposure to digital assets

Strategy is trading at $286.02 per share, or 184.3x forward price-to-sales. If you’re considering MSTR for your portfolio, see our FREE research report to learn more.

Stocks We Like More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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