Running at a loss can be a red flag. Many of these businesses face mounting challenges as competition increases and funding becomes harder to secure.
Unprofitable companies face an uphill battle, but not all are created equal. Luckily for you, StockStory is here to separate the promising ones from the weak. That said, here are three unprofitable companiesto avoid and some better opportunities instead.
Stitch Fix (SFIX)
Trailing 12-Month GAAP Operating Margin: -2.6%
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 Steer Clear of SFIX?
- Sluggish trends in its active clients suggest customers aren’t adopting its solutions as quickly as the company hoped
- Historical operating margin losses point to an inefficient cost structure
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.6% for the last two years
Stitch Fix’s stock price of $3.32 implies a valuation ratio of 0.3x forward price-to-sales. If you’re considering SFIX for your portfolio, see our FREE research report to learn more.
Jack in the Box (JACK)
Trailing 12-Month GAAP Operating Margin: -4%
Delighting customers since its inception in 1951, Jack in the Box (NASDAQ: JACK) is a distinctive fast-food chain known for its bold flavors, innovative menu items, and quirky marketing.
Why Do We Avoid JACK?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 9.3 percentage points
- High net-debt-to-EBITDA ratio of 11× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Jack in the Box is trading at $9.60 per share, or 2.5x forward P/E. Check out our free in-depth research report to learn more about why JACK doesn’t pass our bar.
Zevia (ZVIA)
Trailing 12-Month GAAP Operating Margin: -7.3%
With a primary focus on soda but also a presence in energy drinks and teas, Zevia (NYSE: ZVIA) is a better-for-you beverage company.
Why Does ZVIA Give Us Pause?
- Sales were flat over the last three years, indicating it’s failed to expand its business
- Smaller revenue base of $161.3 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Suboptimal cost structure is highlighted by its history of operating margin losses
At $1.15 per share, Zevia trades at 0.5x forward price-to-sales. Read our free research report to see why you should think twice about including ZVIA in your portfolio.
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