3 Cash-Burning Stocks That Fall Short

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

Vishay Intertechnology (VSH)

Trailing 12-Month Free Cash Flow Margin: -2.9%

Named after the founder's ancestral village in present-day Lithuania, Vishay Intertechnology (NYSE:VSH) manufactures simple chips and electronic components that are building blocks of virtually all types of electronic devices.

Why Are We Out on VSH?

1. Annual sales declines of 5% for the past two years show its products and services struggled to connect with the market during this cycle
2. High input costs result in an inferior gross margin of 20.3% that must be offset through higher volumes
3. Long-term business health is up for debate as its cash burn has increased over the last five years

Vishay Intertechnology is trading at $16.81 per share, or 28.5x forward P/E. If you’re considering VSH for your portfolio, see our FREE research report to learn more.

Advance Auto Parts (AAP)

Trailing 12-Month Free Cash Flow Margin: -3.5%

Founded in Virginia in 1932, Advance Auto Parts (NYSE:AAP) is an auto parts and accessories retailer that sells everything from carburetors to motor oil to car floor mats.

Why Should You Dump AAP?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Issuance of new shares over the last three years caused its earnings per share to fall by 44.3% annually, even worse than its revenue declines
3. High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Advance Auto Parts’s stock price of $50.55 implies a valuation ratio of 18.4x forward P/E. Read our free research report to see why you should think twice about including AAP in your portfolio.

Sunrun (RUN)

Trailing 12-Month Free Cash Flow Margin: -14.3%

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. Historical operating margin losses point to an inefficient cost structure
2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
3. 23× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $11.27 per share, Sunrun trades at 41.3x forward P/E. To fully understand why you should be careful with RUN, check out our full research report (it’s free).

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