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 is one unprofitable company that could turn today’s losses into long-term gains and two best left off your radar.
Two Stocks to Sell:
Enovis (ENOV)
Trailing 12-Month GAAP Operating Margin: -36.8%
With a focus on helping patients regain or maintain their natural motion, Enovis (NYSE: ENOV) develops and manufactures medical devices for orthopedic care, from injury prevention and pain management to joint replacement and rehabilitation.
Why Do We Pass on ENOV?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 8.7% annually over the last five years
- Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $34.21 per share, Enovis trades at 11.1x forward price-to-earnings. If you’re considering ENOV for your portfolio, see our FREE research report to learn more.
Fastly (FSLY)
Trailing 12-Month GAAP Operating Margin: -30.9%
Founded in 2011, Fastly (NYSE: FSLY) provides content delivery and edge cloud computing services, enabling enterprises and developers to deliver fast, secure, and scalable digital content and experiences.
Why Do We Avoid FSLY?
- Sales trends were unexciting over the last three years as its 15.3% annual growth was below the typical software company
- Gross margin of 54.4% is way below its competitors, leaving less money to invest in areas like marketing and R&D
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Fastly’s stock price of $5.81 implies a valuation ratio of 1.4x forward price-to-sales. Read our free research report to see why you should think twice about including FSLY in your portfolio.
One Stock to Watch:
Warby Parker (WRBY)
Trailing 12-Month GAAP Operating Margin: -3.9%
Founded in 2010, Warby Parker (NYSE: WRBY) designs, manufactures, and sells eyewear, including prescription glasses, sunglasses, and contact lenses, through its e-commerce platform and physical retail locations.
Why Do We Like WRBY?
- Rapidly increasing store base reflects a desire to sell in new markets and scale quickly
- Differentiated product assortment results in a best-in-class gross margin of 55%
- Free cash flow margin increased by 3.3 percentage points over the last year, giving the company more capital to invest or return to shareholders
Warby Parker is trading at $15.51 per share, or 45.3x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. 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.
