Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
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.
Moderna (MRNA)
Trailing 12-Month Free Cash Flow Margin: -55.8%
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 Do We Think MRNA Will Underperform?
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Free cash flow margin dropped by 95.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Moderna is trading at $144.62 per share, or 26.6x forward price-to-sales. Check out our free in-depth research report to learn more about why MRNA doesn’t pass our bar.
PacBio (PACB)
Trailing 12-Month Free Cash Flow Margin: -77.5%
Pioneering what scientists call "HiFi long-read sequencing," recognized as Nature Methods' method of the year for 2022, Pacific Biosciences (NASDAQ:PACB) develops advanced DNA sequencing systems that enable scientists and researchers to analyze genomes with unprecedented accuracy and completeness.
Why Are We Hesitant About PACB?
- Annual sales declines of 8.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $1.31 per share, PacBio trades at 2.3x forward price-to-sales. To fully understand why you should be careful with PACB, check out our full research report (it’s free).
Borr Drilling (BORR)
Trailing 12-Month Free Cash Flow Margin: -14.2%
Operating one of the world's youngest jack-up fleets with an average age under eight years, Borr Drilling (NYSE:BORR) operates jack-up rigs that drill oil and gas wells in shallow waters up to 400 feet deep for exploration and production companies.
Why Do We Think Twice About BORR?
- Revenue base of $1.02 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Negative free cash flow raises questions about the return timeline for its investments
Borr Drilling’s stock price of $4.28 implies a valuation ratio of 8.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including BORR in your portfolio.
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