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.
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.
ACV Auctions (ACVA)
Trailing 12-Month GAAP Operating Margin: -9.1%
Founded in 2014, ACV Auctions (NASDAQ: ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.
Why Does ACVA Worry Us?
- Gross margin of 26.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Excessive marketing spend signals little organic demand and traction for its platform
- Low free cash flow margin of 2.7% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
ACV Auctions is trading at $8.75 per share, or 15.5x forward EV/EBITDA. If you’re considering ACVA for your portfolio, see our FREE research report to learn more.
STAAR Surgical (STAA)
Trailing 12-Month GAAP Operating Margin: -48.8%
With over 2.5 million implants performed worldwide, STAAR Surgical (NASDAQ: STAA) designs and manufactures implantable lenses that correct vision problems without removing the eye's natural lens.
Why Are We Out on STAA?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- 35.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Eroding returns on capital suggest its historical profit centers are aging
At $25.91 per share, STAAR Surgical trades at 59.1x forward P/E. Read our free research report to see why you should think twice about including STAA in your portfolio.
PAR Technology (PAR)
Trailing 12-Month GAAP Operating Margin: -15.5%
Originally founded in 1968 as a defense contractor for the U.S. government, PAR Technology (NYSE: PAR) provides cloud-based software, payment processing, and hardware solutions that help restaurants manage everything from point-of-sale to customer loyalty programs.
Why Are We Hesitant About PAR?
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative returns on capital show that some of its growth strategies have backfired
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
PAR Technology’s stock price of $35.76 implies a valuation ratio of 158.5x forward P/E. Dive into our free research report to see why there are better opportunities than PAR.
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