Unprofitable companies can burn through cash quickly, leaving investors exposed if they fail to turn things around. Without a clear path to profitability, these businesses risk running out of capital or relying on dilutive fundraising.
Finding the right unprofitable companies is difficult, which is why we started StockStory - to help you navigate the market. That said, here are three unprofitable companiesto avoid and some better opportunities instead.
fuboTV (FUBO)
Trailing 12-Month GAAP Operating Margin: -9.7%
Originally launched as a soccer streaming platform, fuboTV (NYSE: FUBO) is a video streaming service specializing in live sports, news, and entertainment content.
Why Do We Think Twice About FUBO?
- Performance surrounding its domestic subscribers has lagged its peers
- Persistent operating margin losses suggest the business manages its expenses poorly
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 10.7 percentage points
fuboTV is trading at $3.41 per share, or 134.8x forward EV-to-EBITDA. If you’re considering FUBO for your portfolio, see our FREE research report to learn more.
Tilly's (TLYS)
Trailing 12-Month GAAP Operating Margin: -8.9%
With an emphasis on skate and surf culture, Tilly’s (NYSE: TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.
Why Do We Steer Clear of TLYS?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Performance over the past six years shows each sale was less profitable as its earnings per share dropped by 25.9% annually, worse than its revenue
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $1.49 per share, Tilly's trades at 0.1x trailing 12-month price-to-sales. To fully understand why you should be careful with TLYS, check out our full research report (it’s free).
10x Genomics (TXG)
Trailing 12-Month GAAP Operating Margin: -27.6%
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ: TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Do We Think TXG Will Underperform?
- Negative free cash flow raises questions about the return timeline for its investments
- Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
10x Genomics’s stock price of $12.86 implies a valuation ratio of 2.7x forward price-to-sales. Read our free research report to see why you should think twice about including TXG in your portfolio.
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