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. Keeping that in mind, here are three unprofitable companiesto avoid and some better opportunities instead.
Coupang (CPNG)
Trailing 12-Month GAAP Operating Margin: -1.8%
Founded in 2010 by Harvard Business School student Bom Kim, Coupang (NYSE: CPNG) is an e-commerce giant often referred to as the "Amazon of South Korea".
Why Does CPNG Worry Us?
- White space opportunities may be dwindling as its growth in active customers averaged a weak 7.2%
- Gross margin of 28.9% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 41.4% annually while its revenue grew
Coupang is trading at $16.29 per share, or 19.4x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than CPNG.
Applied Digital (APLD)
Trailing 12-Month GAAP Operating Margin: -43.1%
Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ: APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.
Why Do We Think Twice About APLD?
- Smaller revenue base of $611.3 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy (but also enables it to grow faster if it executes properly)
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $26.88 per share, Applied Digital trades at 32.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why APLD doesn’t pass our bar.
Frontier (ULCC)
Trailing 12-Month GAAP Operating Margin: -9.7%
Recognizable for the colorful animals adorning each aircraft tail, Frontier Group Holdings (NASDAQ: ULCC) is an ultra low-cost airline that provides budget-friendly flights throughout the United States and select international destinations in the Americas.
Why Is ULCC Risky?
- Lackluster 8.2% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
Frontier’s stock price of $5.85 implies a valuation ratio of 27.2x forward P/E. To fully understand why you should be careful with ULCC, check out our full research report (it’s free).
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