3 Cash-Burning Stocks We Keep Off Our Radar
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 that don’t make the cut and some better opportunities instead.
Lincoln Educational (LINC)
Trailing 12-Month Free Cash Flow Margin: -1.7%
Established in 1946, Lincoln Educational (NASDAQ:LINC) is a provider of specialized technical training in the United States, offering career-oriented programs to provide practical skills required in the workforce.
Why Should You Sell LINC?
- Number of enrolled students has disappointed over the past two years, indicating weak demand for its offerings
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Lincoln Educational’s stock price of $42.01 implies a valuation ratio of 52.9x forward P/E. To fully understand why you should be careful with LINC, check out our full research report (it’s free).
GEO Group (GEO)
Trailing 12-Month Free Cash Flow Margin: -1.1%
With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE:GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.
Why Is GEO Not Exciting?
- Sales trends were unexciting over the last five years as its 3.3% annual growth was below the typical business services company
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 4 percentage points
- 11.1 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
At $29.65 per share, GEO Group trades at 23.1x forward P/E. If you’re considering GEO for your portfolio, see our FREE research report to learn more.
Ducommun (DCO)
Trailing 12-Month Free Cash Flow Margin: -4.3%
California’s oldest company, Ducommun (NYSE:DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Are We Cautious About DCO?
- Backlog has dropped by 16% on average over the past two years, suggesting it’s losing orders as competition picks up
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 11.2 percentage points
- Underwhelming 2.4% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
Ducommun is trading at $168.78 per share, or 38.9x forward P/E. Read our free research report to see why you should think twice about including DCO in your portfolio.
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