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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.

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 steer clear of and a few better alternatives.

Perma-Fix (PESI)

Trailing 12-Month Free Cash Flow Margin: -30.7%

Tackling hazardous waste challenges since 1990, Perma-Fix (NASDAQ:PESI) provides environmental waste treatment services.

Why Is PESI Risky?

1. Annual sales declines of 4.3% for the past five years show its products and services struggled to connect with the market during this cycle

2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

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

Perma-Fix is trading at $8.31 per share, or 1.7x forward price-to-sales. Check out our free in-depth research report to learn more about why PESI doesn’t pass our bar.

Skillz (SKLZ)

Trailing 12-Month Free Cash Flow Margin: -10.4%

Taking a new twist at video gaming, Skillz (NYSE:SKLZ) offers developers a platform to create and distribute mobile games where players can pay fees to compete for cash prizes.

Why Do We Think SKLZ Will Underperform?

1. Paying Monthly Active Users have declined by 41.7% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive

2. EBITDA profits fell over the last few years as its sales dropped and it struggled to adjust its fixed costs

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

Skillz’s stock price of $4.58 implies a valuation ratio of 1.1x forward price-to-gross profit. Read our free research report to see why you should think twice about including SKLZ in your portfolio, it’s free.

SolarEdge (SEDG)

Trailing 12-Month Free Cash Flow Margin: -46.8%

Established in 2006, SolarEdge (NASDAQ: SEDG) creates advanced systems to improve the efficiency of solar panels.

Why Do We Pass on SEDG?

1. Performance surrounding its megawatts shipped has lagged its peers

2. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

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

At $12.43 per share, SolarEdge trades at 0.7x forward price-to-sales. If you’re considering SEDG for your portfolio, see our FREE research report to learn more.