Today’s U.S. stock market shows valuation levels that rival, and in some cases exceed, past bubbles. Both the S&P 500’s price-to-sales (P/S) ratio and (cyclically adjusted P/E) CAPE ratio are well above long-term averages and mirror levels not seen since before the dot-com crash in 2000. The Buffett Indicator (market cap to GDP) is higher than before both the 2000 and 2008 downturns.

These signals paint an unmistakable portrait: investors are buying up equities at levels rarely seen outside of bubble eras.

History suggests that when valuations detach this far from underlying earnings power, the bubble eventually pops and markets correct. Investors should remain selective and avoid companies whose valuations are most disconnected from their fundamental economics.

In honor of this top-heavy market, we’re bringing you two Danger Zone picks this week.

This company’s revenue growth is slowing, its profitability ranks at the bottom of its industry, and its cash burn lands it back on the Zombie Stock list.

Below is a free excerpt from our latest Danger Zone report, published today to Pro and Institutional members. You can buy the full report a la carte here.

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Since our original report, this pick has outperformed as a short by ~122%, falling 60% while the S&P 500 is up 63%.

Even after being down 35%+ year-to-date (YTD), we see further downside in this stock based on:

  • consistently high cash burn and a short cash runway,
  • slowing revenue growth,
  • worst profitability in the industry,
  • a stock valuation that implies this company will become larger than two of its bigger competitors combined.

Back on the Zombie Stocks List

Unprofitable companies with fast-depleting cash reserves are risky investments in any market. These risks are higher when the cost of raising capital is higher. This company’s weighted average cost of capital (WACC) increased from 9.3% in 2019 to 10.1% in the TTM.

We previously removed this stock from the Zombie Stocks List after the company issued senior convertible notes and increased cash on hand, which ultimately increased its cash runway to more than 24 months.

However, the company’s cash on hand fell from $1.1 billion in the TTM ended 2Q24 to $636 million in the TTM ended 2Q25.

With this lower cash balance (and consistently negative FCF), this company can only sustain its TTM free cash flow (FCF) burn for 24 months from the end of August. The company also has a negative interest coverage ratio, and now officially earns its spot back on the Zombie Stocks List.

The company will likely need to raise expensive capital once again to avoid bankruptcy, unless it can engineer a turnaround in the profitability of its operations. Otherwise, the stock has a real risk of going to $0/share.

Figure 1: This Stock Is Back on the Zombie Stocks List

Sources: New Constructs, LLC and company filings.
* As of 6/30/25
** To calculate “Months till Bankruptcy” we divided the TTM FCF burn, excluding acquisitions, by 12 to get the monthly cash burn. We then divide reported cash and equivalents and long-term investments in the most recent 10-Q by the monthly cash burn.  

Massive Cash Burn Continues

This company’s FCF has been negative on an annual basis in eight of the ten years of our model (since 2015) and is negative in the TTM ended 2Q25. 2018 was the last annual period the company generated positive FCF. On a quarterly basis, the company generated a positive FCF in just one (3Q20) out of the last 20 quarters.

Since 2017, the company has burned through a cumulative $1.1 billion (47% of enterprise value) in FCF excluding acquisitions. In the TTM, the company’s cash burn sits at -$299 million.

Figure 2: Cumulative Free Cash Flow: 2015 Through 1H25

Sources: New Constructs, LLC and company filings

Shares Outstanding on the Rise

Despite regularly selling stock, the company is still low on cash. Per Figure 3, the company’s shares have increased YoY every year since the company’s IPO in 2014.

This company’s shares outstanding nearly doubled from 38 million shares at the end of 2014 to 76 million shares at the end of 2Q25.

Figure 3: Shares Outstanding: 2014 – 2Q25

Sources: New Constructs, LLC and company filings

…there’s much more in the full report. You can buy the report a la carte here.

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I’ll keep sending information on low quality sectors, industries, or specific companies until you’re ready to start your membership, but know that we expect this Danger Zone pick to underperform.

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