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.
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.
Nextdoor (NXDR)
Trailing 12-Month GAAP Operating Margin: -34.1%
Helping residents figure out what's happening on their block in real time, Nextdoor (NYSE: KIND) is a social network that connects neighbors with each other and with local businesses.
Why Are We Cautious About NXDR?
- White space opportunities may be dwindling as its growth in weekly active users averaged a weak 6.5%
- Persistent EBITDA margin losses suggest the business manages its expenses poorly
- Negative free cash flow raises questions about the return timeline for its investments
Nextdoor is trading at $2.45 per share, or 4.9x forward price-to-gross profit. Check out our free in-depth research report to learn more about why NXDR doesn’t pass our bar.
Kura Sushi (KRUS)
Trailing 12-Month GAAP Operating Margin: -1.7%
Known for its conveyor belt that transports dishes to diners, Kura Sushi (NASDAQ: KRUS) is a chain of sushi restaurants serving traditional Japanese fare with a touch of modernity and technology.
Why Are We Wary of KRUS?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Kura Sushi’s stock price of $51.78 implies a valuation ratio of 29.6x forward EV-to-EBITDA. If you’re considering KRUS for your portfolio, see our FREE research report to learn more.
SolarEdge (SEDG)
Trailing 12-Month GAAP Operating Margin: -49.5%
Established in 2006, SolarEdge (NASDAQ: SEDG) creates advanced systems to improve the efficiency of solar panels.
Why Do We Avoid SEDG?
- Sluggish trends in its megawatts shipped suggest customers aren’t adopting its solutions as quickly as the company hoped
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
At $29.58 per share, SolarEdge trades at 1.4x forward price-to-sales. Read our free research report to see why you should think twice about including SEDG in your portfolio.
Stocks We Like More
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