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.
A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. Keeping that in mind, here are three unprofitable companiesto avoid and some better opportunities instead.
Stitch Fix (SFIX)
Trailing 12-Month GAAP Operating Margin: -5.5%
One of the original subscription box companies, Stitch Fix (NASDAQ: SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.
Why Do We Avoid SFIX?
- Demand for its offerings was relatively low as its number of active clients has underwhelmed
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $4.90 per share, Stitch Fix trades at 13.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SFIX doesn’t pass our bar.
Beyond Meat (BYND)
Trailing 12-Month GAAP Operating Margin: -53%
A pioneer at the forefront of the plant-based protein revolution, Beyond Meat (NASDAQ: BYND) is a food company specializing in alternatives to traditional meat products.
Why Do We Think BYND Will Underperform?
- Declining unit sales over the past two years suggest it might have to lower prices to stimulate growth
- 18.5 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Beyond Meat is trading at $2.60 per share, or 0.7x forward price-to-sales. Read our free research report to see why you should think twice about including BYND in your portfolio.
Sonos (SONO)
Trailing 12-Month GAAP Operating Margin: -6.1%
A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.
Why Do We Pass on SONO?
- Annual sales declines of 8% for the past two years show its products and services struggled to connect with the market
- Historical operating margin losses point to an inefficient cost structure
- Negative returns on capital show that some of its growth strategies have backfired
Sonos’s stock price of $12.98 implies a valuation ratio of 21.2x forward P/E. If you’re considering SONO for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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