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 is one high-risk, high-reward company that could turn today’s losses into tomorrow’s gains and two to leave off your radar.

Trailing 12-Month Free Cash Flow Margin: 0.6%

Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ:LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.

Why Do We Think LESL Will Underperform?

Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience

Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 32.9% annually, worse than its revenue

20× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

At $1.04 per share, Leslie's trades at 18.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including LESL in your portfolio, it’s free.

Trailing 12-Month Free Cash Flow Margin: -4.5%

Pioneering the professional employer organization (PEO) industry it helped establish, Insperity (NYSE:NSP) provides human resources outsourcing services to small and medium-sized businesses, handling payroll, benefits, compliance, and HR administration.

Why Do We Steer Clear of NSP?

Muted 2.5% annual revenue growth over the last two years shows its demand lagged behind its business services peers

Incremental sales over the last five years were much less profitable as its earnings per share fell by 26% annually while its revenue grew

Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.1 percentage points

Insperity’s stock price of $23.35 implies a valuation ratio of 11.6x forward P/E. Check out our free in-depth research report to learn more about why NSP doesn’t pass our bar.

Trailing 12-Month Free Cash Flow Margin: -5.6%

Rebranded from BRP Group in May 2024, Baldwin Insurance Group (NASDAQ:BWIN) is an independent insurance distribution company that provides tailored insurance, risk management, and employee benefits solutions to businesses and individuals.

Why Is BWIN a Top Pick?

Existing business lines can expand without risky acquisitions as its organic revenue growth averaged 13.6% over the past two years

Adjusted operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient

Earnings per share grew by 22.5% annually over the last two years, massively outpacing its peers

Baldwin Insurance Group is trading at $15.74 per share, or 8.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

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