Unprofitable companies face headwinds as they struggle to keep operating expenses under control. Some may be investing heavily, but the majority fail to convert spending into sustainable growth.
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 companies to avoid and some better opportunities instead.
ThredUp (TDUP)
Trailing 12-Month GAAP Operating Margin: -7.1%
Founded to revolutionize thrifting, ThredUp (NASDAQ: TDUP) is a leading online fashion resale marketplace offering a wide selection of gently-used clothing and accessories.
Why Is TDUP Risky?
- Demand for its offerings was relatively low as its number of orders has underwhelmed
- Persistent operating margin losses suggest the business manages its expenses poorly
- Free cash flow margin is projected to show no improvement next year
At $2.95 per share, ThredUp trades at 21.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why TDUP doesn’t pass our bar.
EVgo (EVGO)
Trailing 12-Month GAAP Operating Margin: -30.5%
Created through a settlement between NRG Energy and the California Public Utilities Commission, EVgo (NASDAQ: EVGO) is a provider of electric vehicle charging solutions, operating fast charging stations across the United States.
Why Does EVGO Give Us Pause?
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
EVgo is trading at $1.53 per share, or 16.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including EVGO in your portfolio.
Navient (NAVI)
Trailing 12-Month GAAP Operating Margin: -5.8%
Spun off from Sallie Mae in 2014 to handle the company's loan servicing and collection operations, Navient (NASDAQ: NAVI) provides education loan servicing and business processing solutions that help manage federal student loans, private education loans, and government services.
Why Are We Bearish on NAVI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 21.6% annually over the last five years
- Earnings per share have contracted by 15.7% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
Navient’s stock price of $9.16 implies a valuation ratio of 10.8x forward P/E. Dive into our free research report to see why there are better opportunities than NAVI.
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