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.
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 companiesthat don’t make the cut and some better opportunities instead.
Okta (OKTA)
Trailing 12-Month GAAP Operating Margin: -2.8%
Founded during the aftermath of the financial crisis in 2009, Okta (NASDAQ: OKTA) is a cloud-based software-as-a-service platform that helps companies manage identity for their employees and customers.
Why Does OKTA Give Us Pause?
- Estimated sales growth of 9.6% for the next 12 months implies demand will slow from its three-year trend
- Track record of operating losses stem from its decision to pursue growth instead of profits
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 4.1 percentage points
At $97.02 per share, Okta trades at 6x forward price-to-sales. If you’re considering OKTA for your portfolio, see our FREE research report to learn more.
The RealReal (REAL)
Trailing 12-Month GAAP Operating Margin: -9.4%
Founded by consignment store aficionado Julie Wainwright, The RealReal (NASDAQ: REAL) is an online marketplace for buying and selling secondhand luxury goods.
Why Is REAL Not Exciting?
- Value proposition isn’t resonating strongly as its active buyers averaged 7.7% drops over the last two years
- Negative free cash flow raises questions about the return timeline for its investments
- High net-debt-to-EBITDA ratio of 23× could force the company to raise capital at unfavorable terms if market conditions deteriorate
The RealReal’s stock price of $5.38 implies a valuation ratio of 21.1x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than REAL.
Lucid (LCID)
Trailing 12-Month GAAP Operating Margin: -374%
Founded by a former Tesla Vice President, Lucid Group (NASDAQ: LCID) designs, manufactures, and sells luxury electric vehicles with long-range capabilities.
Why Are We Wary of LCID?
- Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 9.6% annually
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Lucid is trading at $2.36 per share, or 4.4x forward price-to-sales. Check out our free in-depth research report to learn more about why LCID doesn’t pass our bar.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
