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. Keeping that in mind, here are three cash-burning companies to steer clear of and a few better alternatives.

AeroVironment (AVAV)

Trailing 12-Month Free Cash Flow Margin: -17.6%

Focused on the future of autonomous military combat, AeroVironment (NASDAQ:AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.

Why Are We Hesitant About AVAV?

1. Efficiency has decreased over the last five years as its operating margin fell by 8.4 percentage points
2. Earnings per share fell by 9.9% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 19 percentage points

AeroVironment’s stock price of $278.45 implies a valuation ratio of 63.6x forward P/E. Dive into our free research report to see why there are better opportunities than AVAV.

Byrna (BYRN)

Trailing 12-Month Free Cash Flow Margin: -10%

Providing civilians with tools to disable, disarm, and deter would-be assailants, Byrna (NASDAQ:BYRN) is a provider of non-lethal weapons.

Why Are We Cautious About BYRN?

1. Historical operating margin losses point to an inefficient cost structure
2. Negative free cash flow raises questions about the return timeline for its investments
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

At $13.71 per share, Byrna trades at 15.5x forward EV-to-EBITDA. If you’re considering BYRN for your portfolio, see our FREE research report to learn more.

Park-Ohio (PKOH)

Trailing 12-Month Free Cash Flow Margin: -1.1%

Based in Cleveland, Park-Ohio (NASDAQ:PKOH) provides supply chain management services, capital equipment, and manufactured components.

Why Do We Steer Clear of PKOH?

1. Annual sales declines of 1.8% for the past two years show its products and services struggled to connect with the market during this cycle
2. Gross margin of 15.5% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. Cash-burning history makes us doubt the long-term viability of its business model

Park-Ohio is trading at $22.61 per share, or 7.1x forward P/E. Check out our free in-depth research report to learn more about why PKOH doesn’t pass our bar.

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