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.
Roku (ROKU)
Trailing 12-Month GAAP Operating Margin: -2.4%
With a name meaning six in Japanese because it was the founder's sixth company that he started, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.
Why Are We Wary of ROKU?
- Decision to emphasize platform growth over monetization has contributed to sluggish trends in its average revenue per user
- Gross margin of 44% reflects its high servicing costs
- Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas
Roku is trading at $108.29 per share, or 31.1x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ROKU.
Bark (BARK)
Trailing 12-Month GAAP Operating Margin: -7%
Making a name for itself with the BarkBox, Bark (NYSE: BARK) specializes in subscription-based, personalized pet products.
Why Are We Out on BARK?
- Products and services have few die-hard fans as sales have declined by 5.3% annually over the last two years
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Low free cash flow margin of -0.9% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $0.81 per share, Bark trades at 50.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including BARK in your portfolio.
Stratasys (SSYS)
Trailing 12-Month GAAP Operating Margin: -11.4%
Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ: SSYS) offers 3D printers and related materials, software, and services to many industries.
Why Should You Dump SSYS?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Persistent operating margin losses suggest the business manages its expenses poorly
- Free cash flow margin shrank by 6.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Stratasys’s stock price of $9.80 implies a valuation ratio of 68.7x forward P/E. To fully understand why you should be careful with SSYS, check out our full research report (it’s free for active Edge members).
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