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.
A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. That said, here are three unprofitable companies to steer clear of and a few better alternatives.
Clarus (CLAR)
Trailing 12-Month GAAP Operating Margin: -17.2%
Initially a financial services business, Clarus (NASDAQ: CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.
Why Is CLAR Risky?
- Sales tumbled by 2.6% annually over the last five years, showing consumer trends are working against it
- Negative free cash flow raises questions about the return timeline for its investments
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Clarus is trading at $3.90 per share, or 34.8x forward P/E. To fully understand why you should be careful with CLAR, check out our full research report (it’s free).
Gilead Sciences (GILD)
Trailing 12-Month GAAP Operating Margin: -8.2%
From its groundbreaking work in developing the first single-tablet regimens for HIV treatment, Gilead Sciences (NASDAQ: GILD) develops and markets innovative medicines for life-threatening diseases including HIV, viral hepatitis, COVID-19, and cancer.
Why Are We Cautious About GILD?
- The company has faced growth challenges as its 2.7% annual revenue increases over the last five years fell short of other healthcare companies
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 34.2 percentage points
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
At $146.00 per share, Gilead Sciences trades at 16x forward P/E. Read our free research report to see why you should think twice about including GILD in your portfolio.
Concentrix (CNXC)
Trailing 12-Month GAAP Operating Margin: -10.2%
With a team of approximately 450,000 employees across 75 countries, Concentrix (NASDAQ: CNXC) designs and delivers customer experience solutions that help global brands manage their customer interactions across digital channels and contact centers.
Why Does CNXC Fall Short?
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 1.6% annually
- Underwhelming 2.5% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Concentrix’s stock price of $26.03 implies a valuation ratio of 2.2x forward P/E. If you’re considering CNXC for your portfolio, see our FREE research report to learn more.
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