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.
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. Keeping that in mind, here are three unprofitable companiesto steer clear of and a few better alternatives.
Medifast (MED)
Trailing 12-Month GAAP Operating Margin: -1.3%
Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE: MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.
Why Do We Steer Clear of MED?
- Annual revenue declines of 36% over the last three years indicate problems with its market positioning
- Revenue base of $429.7 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 90.9% annually, worse than its revenue
At $10.42 per share, Medifast trades at 0.3x forward price-to-sales. If you’re considering MED for your portfolio, see our FREE research report to learn more.
Estée Lauder (EL)
Trailing 12-Month GAAP Operating Margin: -3.4%
Named after its founder, who was an entrepreneurial woman from New York with a passion for skincare, Estée Lauder (NYSE: EL) is a one-stop beauty shop with products in skincare, fragrance, makeup, sun protection, and men’s grooming.
Why Is EL Not Exciting?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Inability to adjust its cost structure while its revenue declined over the last year led to a 8.3 percentage point drop in the company’s operating margin
- Sales were less profitable over the last three years as its earnings per share fell by 36.9% annually, worse than its revenue declines
Estée Lauder’s stock price of $86.54 implies a valuation ratio of 37.2x forward P/E. To fully understand why you should be careful with EL, check out our full research report (it’s free for active Edge members).
Offerpad (OPAD)
Trailing 12-Month GAAP Operating Margin: -6.3%
Known for giving homeowners cash offers within 24 hours, Offerpad (NYSE: OPAD) operates a tech-enabled platform specializing in direct home buying and selling solutions.
Why Do We Avoid OPAD?
- Demand for its offerings was relatively low as its number of homes purchased has underwhelmed
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 10.5 percentage points over the next year
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
Offerpad is trading at $1.68 per share, or 0.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OPAD.
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