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.

Trailing 12-Month Free Cash Flow Margin: -6.4%

Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ:DNUT) is one of the most beloved and well-known fast-food chains in the world.

Why Is DNUT Risky?

Earnings per share have dipped by 28.6% annually over the past four years, which is concerning because stock prices follow EPS over the long term

Cash-burning history makes us doubt the long-term viability of its business model

Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Krispy Kreme’s stock price of $3.15 implies a valuation ratio of 14.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why DNUT doesn’t pass our bar.

Trailing 12-Month Free Cash Flow Margin: -1.2%

One of the ‘Big Four’ airlines in the US, American Airlines (NASDAQ:AAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.

Why Do We Pass on AAL?

Number of revenue passenger miles has disappointed over the past two years, indicating weak demand for its offerings

Returns on capital are growing as management invests in more worthwhile ventures

9× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $13.28 per share, American Airlines trades at 6.3x forward P/E. To fully understand why you should be careful with AAL, check out our full research report (it’s free).

Trailing 12-Month Free Cash Flow Margin: -10.6%

With a network of over 250 facilities serving patients in 38 states and Puerto Rico, Acadia Healthcare (NASDAQ:ACHC) operates facilities providing mental health and substance use disorder treatment services across the United States.

Why Does ACHC Fall Short?

Underwhelming admissions over the past two years indicate demand is soft and that the company may need to revise its strategy

Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 5.2 percentage points

21.7 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

Acadia Healthcare is trading at $13.45 per share, or 8.5x forward P/E. Dive into our free research report to see why there are better opportunities than ACHC.

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

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