After a weekend marked by Warren Buffett officially announcing his departure from Berkshire Hathaway, investors are reminded of the importance of disciplined, fundamentals-based investing. Now, perhaps more than ever, investors need to be diligent in an increasingly speculative market.

This week’s Danger Zone pick is one stock that, after doing due diligence, is not worth owning. The company is burning cash at zombie stock-like levels, yet its valuation implies massive profit growth and a near quadrupling of the business’ market share. That disconnect is dangerous to any portfolio.

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This stock could fall further based on:

  • slowing production and deliveries,
  • dwindling market share,
  • large cash burn,
  • more profitable competitors, and
  • a stock valuation that implies the company will quadruple its market share.

Zombie-Like Cash Burn

Since 2020, this company has burned $32.5 billion (159% of enterprise value) in free cash flow (FCF) excluding acquisitions. See Figure 3. The company burned $8.1 billion in FCF in the last two years alone.

Not surprisingly, the company’s economic earnings, the true cash flows of the business that take into account changes to the balance sheet, fell from -$692 million in 2019 to -$6.3 billion in 2024.

Despite having $7.7 billion of cash on hand as of December 31, 2024, this company can only sustain its 2024 cash burn rate for 22 months from the end of April 2025. Additionally, the company’s interest coverage ratio is currently -13.6.

This company meets all the criteria of a Zombie Stock, but we aren’t putting it back on the list is because we think a prominent competitor/peer is likely to provide additional investment and would not let the company go bankrupt.

Figure 3: Cumulative FCF: 2020 – 2024

Sources: New Constructs, LLC and company filings.   

Breakeven Still a Distant Dream

Not only does this company continue to burn billions in cash, but its operations also remain far from breakeven.

The company’s total operating costs, which include cost of revenue, R&D, and SG&A were 229% of revenue in 2023 and 194% in 2024. We would expect the company’s operating costs to remain high as the company continues to build out production capacity and aim to take market share.

With total operating costs nearly twice as high as its revenue, it’s no surprise the company is racking up losses.

The company’s net operating profit after-tax (NOPAT) declined from -$399 million in 2019 to -$4.6 billion in 2024. See Figure 4.

Figure 4: NOPAT Since 2019

Sources: New Constructs, LLC and company filings. 

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