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.
1-800-FLOWERS (FLWS)
Trailing 12-Month GAAP Operating Margin: -4.5%
Founded in 1976, 1-800-FLOWERS (NASDAQ: FLWS) is an online retailer of flowers, gifts, and gourmet foods, serving customers globally.
Why Do We Pass on FLWS?
- Annual sales declines of 5.5% for the past five years show its products and services struggled to connect with the market
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $3.69 per share, 1-800-FLOWERS trades at 0.2x forward price-to-sales. Check out our free in-depth research report to learn more about why FLWS doesn’t pass our bar.
Wabash (WNC)
Trailing 12-Month GAAP Operating Margin: -3.1%
With its first trailer reportedly built on two sawhorses, Wabash (NYSE: WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.
Why Is WNC Risky?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 29% declines over the past two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Wabash is trading at $13.93 per share, or 13.8x forward EV-to-EBITDA. If you’re considering WNC for your portfolio, see our FREE research report to learn more.
SoundHound AI (SOUN)
Trailing 12-Month GAAP Operating Margin: -94.6%
Born from the idea that machines should understand human speech as naturally as people do, SoundHound AI (NASDAQ: SOUN) develops voice recognition and conversational intelligence technology that enables businesses to integrate voice assistants into their products and services.
Why Do We Think Twice About SOUN?
- Gross margin of 40.6% reflects its high servicing costs
- Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
- Negative free cash flow raises questions about the return timeline for its investments
SoundHound AI’s stock price of $6.20 implies a valuation ratio of 10.9x forward price-to-sales. To fully understand why you should be careful with SOUN, check out our full research report (it’s free).
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