Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.

Just because a company is spending heavily doesn’t mean it’s on the right track, and StockStory is here to separate the winners from the losers. Keeping that in mind, here are three cash-burning companies to steer clear of and a few better alternatives.

Newmark (NMRK)

Trailing 12-Month Free Cash Flow Margin: -9%

Founded in 1929, Newmark (NASDAQ: NMRK) provides commercial real estate services, including leasing advisory, global corporate services, investment sales and capital markets, property and facilities management, valuation and advisory, and consulting.

Why Should You Sell NMRK?

1. Sales trends were unexciting over the last five years as its 7.4% annual growth was below the typical consumer discretionary company
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin for the last two years
3. Underwhelming 2.6% return on capital reflects management’s difficulties in finding profitable growth opportunities

Newmark is trading at $16.79 per share, or 10.2x forward P/E. To fully understand why you should be careful with NMRK, check out our full research report (it’s free for active Edge members).

Matthews (MATW)

Trailing 12-Month Free Cash Flow Margin: -2.2%

Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.

Why Do We Steer Clear of MATW?

1. Products and services aren't resonating with the market as its revenue declined by 6.5% annually over the last two years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 14.8% annually
3. Negative free cash flow raises questions about the return timeline for its investments

Matthews’s stock price of $23.20 implies a valuation ratio of 17.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than MATW.

Clover Health (CLOV)

Trailing 12-Month Free Cash Flow Margin: -3%

Founded in 2014 to improve healthcare for America's seniors through technology, Clover Health (NASDAQ: CLOV) provides Medicare Advantage plans for seniors with a focus on affordable care and uses its proprietary Clover Assistant software to help physicians manage patient care.

Why Does CLOV Fall Short?

1. Annual sales declines of 18.1% for the past two years show its products and services struggled to connect with the market during this cycle
2. Smaller revenue base of $1.61 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Cash burn makes us question whether it can achieve sustainable long-term growth

At $2.77 per share, Clover Health trades at 17.4x forward P/E. If you’re considering CLOV for your portfolio, see our FREE research report to learn more.

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