Rapid spending isn’t always a sign of progress. Some cash-burning businesses fail to convert investments into meaningful competitive advantages, leaving them vulnerable.
Negative cash flow can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. That said, here is one high-risk, high-reward company that could turn today’s losses into tomorrow’s gains and two to leave off your radar.
Two Stocks to Sell:
Kratos (KTOS)
Trailing 12-Month Free Cash Flow Margin: -10.2%
Established with a commitment to supporting national security, Kratos (NASDAQ: KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.
Why Are We Wary of KTOS?
- Growth came at the expense of profits over the last five years as its substandard operating margin deteriorated even further
- 8.8 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
- Low returns on capital reflect management’s struggle to allocate funds effectively
Kratos is trading at $96.13 per share, or 122.8x forward P/E. Check out our free in-depth research report to learn more about why KTOS doesn’t pass our bar.
Lemonade (LMND)
Trailing 12-Month Free Cash Flow Margin: -3.5%
Built on the principle of giving back unused premiums to charitable causes selected by policyholders, Lemonade (NYSE: LMND) is a technology-driven insurance company that offers homeowners, renters, pet, car, and life insurance through an AI-powered digital platform.
Why Are We Hesitant About LMND?
- Incremental sales over the last two years were less profitable as its 15.8% annual earnings per share growth lagged its revenue gains
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 5.9% annually over the last five years
- Push for growth has led to negative returns on capital, signaling value destruction
At $67.67 per share, Lemonade trades at 11.1x forward P/B. Dive into our free research report to see why there are better opportunities than LMND.
One Stock to Watch:
IonQ (IONQ)
Trailing 12-Month Free Cash Flow Margin: -230%
Founded by quantum physics pioneers from the University of Maryland and Duke University in 2015, IonQ (NYSE: IONQ) develops quantum computers that process information using trapped ions to solve complex computational problems beyond the capabilities of traditional computers.
Why Are We Fans of IONQ?
- Annual revenue growth of 143% over the last two years was superb and indicates its market share increased during this cycle
- Expected revenue growth of 81.7% for the next year suggests its market share will rise
- Adjusted operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
IonQ’s stock price of $33.97 implies a valuation ratio of 52x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
