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.
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 companiesto steer clear of and a few better alternatives.
Appian (APPN)
Trailing 12-Month GAAP Operating Margin: -2.1%
Powering billions of transactions daily since its founding in 1999, Appian (NASDAQ: APPN) provides a low-code platform that helps businesses automate complex processes and operationalize artificial intelligence without extensive programming knowledge.
Why Does APPN Worry Us?
- Revenue increased by 13.9% annually over the last two years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Low free cash flow margin of 7% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Appian’s stock price of $28.70 implies a valuation ratio of 2.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than APPN.
Noodles (NDLS)
Trailing 12-Month GAAP Operating Margin: -2.5%
Offering pasta, mac and cheese, pad thai, and more, Noodles & Company (NASDAQ: NDLS) is a casual restaurant chain that serves all manner of noodles from around the world.
Why Is NDLS Risky?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Performance over the past six years shows its incremental sales were much less profitable, as its earnings per share fell by 47.8% annually
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $0.64 per share, Noodles trades at 2.6x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including NDLS in your portfolio.
10x Genomics (TXG)
Trailing 12-Month GAAP Operating Margin: -15.6%
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ: TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Are We Cautious About TXG?
- Muted 6.5% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative returns on capital show management lost money while trying to expand the business
10x Genomics is trading at $11.30 per share, or 2.4x forward price-to-sales. If you’re considering TXG for your portfolio, see our FREE research report to learn more.
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