2 cash-burning stocks for long-term investors and 1 we turn down

While certain companies utilize cash burn to drive their growth strategies, others find it challenging to translate their spending into lasting success. A high rate of cash burn, particularly when not supported by a robust balance sheet, can expose investors to considerable risks. Not every company warrants the investment, which is the rationale behind StockStory's creation—to assist in identifying potential warning signs. In this context, we present two companies that are taking significant risks in pursuit of market leadership, alongside one that appears to be facing serious challenges.

One stock to consider selling is Solventum (SOLV). Established in 1985, Solventum (NYSE:SOLV) specializes in the development, manufacturing, and commercialization of healthcare products and services tailored to meet essential customer and therapeutic needs. However, there are several reasons to be cautious about investing in SOLV.

Firstly, the company's organic revenue growth has not met industry benchmarks over the past two years, indicating a need for improvements in its product offerings, pricing strategies, or market approach. Secondly, market analysts predict a lack of demand over the next year, with expectations for revenue to remain flat. Additionally, Solventum has seen its free cash flow margin decrease by 18.2 percentage points over the last five years, signaling an increased reliance on capital to maintain its competitive edge. Currently trading at $88.23 per share, Solventum has a forward price-to-earnings ratio of 12.8. Our research suggests that there are more promising investment opportunities available than SOLV.

On the other hand, Upstart (UPST) presents a more favorable investment option. With a trailing 12-month free cash flow margin of -27.2%, Upstart (NASDAQ:UPST) operates as an AI-driven lending platform that leverages machine learning to assist banks and credit unions in accurately evaluating borrower risk for various types of loans, including personal, auto, and home equity loans. There are compelling reasons to view UPST as a solid investment.

For one, the platform has experienced impressive growth in loan originations, averaging a 54.3% increase over the past year. This surge enables the company to generate more fees and expand into new markets, such as credit cards. Moreover, analysts project a revenue growth of 30.4% for the upcoming year, indicating potential market share expansion. Finally, there is optimism surrounding Upstart's cash flow, with expectations of it turning positive next year, marking a pivotal point for the company. Trading at $23.77 per share, Upstart's forward price-to-sales ratio stands at 1.6. Interested investors can explore our detailed research report to evaluate whether this is the right moment to invest.

Another stock worth considering is Nubank (NU), which has a trailing 12-month free cash flow margin of -6.8%. Nubank (NYSE:NU) has successfully attracted over one hundred million customers across Brazil, Mexico, and Colombia, thanks to its innovative member-get-member referral program. This digital banking platform provides a range of financial services, including spending, saving, investing, borrowing, and insurance products, to millions throughout Latin America.