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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. That said, here are three cash-burning companies to avoid and some better opportunities instead.

Mister Car Wash (MCW)

Trailing 12-Month Free Cash Flow Margin: -2.5%

Formerly known as Hotshine Holdings, Mister Car Wash (NYSE:MCW) offers car washes across the United States through its conveyorized service.

Why Should You Dump MCW?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores

2. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

At $7.49 per share, Mister Car Wash trades at 16.5x forward P/E. Check out our free in-depth research report to learn more about why MCW doesn’t pass our bar.

ChargePoint (CHPT)

Trailing 12-Month Free Cash Flow Margin: -38.1%

The most prominent EV charging company during the COVID bull market, ChargePoint (NYSE:CHPT) is a provider of electric vehicle charging technology solutions in North America and Europe.

Why Is CHPT Not Exciting?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 5.6% annually over the last two years

2. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

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

ChargePoint is trading at $0.60 per share, or 0.6x forward price-to-sales. Read our free research report to see why you should think twice about including CHPT in your portfolio, it’s free.

Dave & Buster's (PLAY)

Trailing 12-Month Free Cash Flow Margin: -10.2%

Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ:PLAY) operates a chain of arcades providing immersive entertainment experiences.

Why Do We Avoid PLAY?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations

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

3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Dave & Buster’s stock price of $21.51 implies a valuation ratio of 7.8x forward P/E. To fully understand why you should be careful with PLAY, check out our full research report (it’s free).