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.
Finding the right unprofitable companies is difficult, which is why we started StockStory - to help you navigate the market. That said, here are three unprofitable companiesthat don’t make the cut and some better opportunities instead.
Zillow (ZG)
Trailing 12-Month GAAP Operating Margin: -7%
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ: ZG) is the leading U.S. online real estate marketplace.
Why Should You Sell ZG?
- Annual revenue declines of 7.6% over the last five years indicate problems with its market positioning
- Persistent operating margin losses suggest the business manages its expenses poorly
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Zillow is trading at $66.10 per share, or 35.3x forward P/E. Read our free research report to see why you should think twice about including ZG in your portfolio.
Roku (ROKU)
Trailing 12-Month GAAP Operating Margin: -4.8%
Spun out from Netflix, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.
Why Does ROKU Fall Short?
- Decision to emphasize platform growth over monetization has contributed to 1.4% annual declines in its average revenue per user
- Efficiency has decreased over the last few years as its EBITDA margin fell by 7.1 percentage points
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 36.7% annually while its revenue grew
At $80.99 per share, Roku trades at 32.5x forward EV/EBITDA. Check out our free in-depth research report to learn more about why ROKU doesn’t pass our bar.
Allegro MicroSystems (ALGM)
Trailing 12-Month GAAP Operating Margin: -2.7%
The result of a spinoff from Sanken in Japan, Allegro MicroSystems (NASDAQ: ALGM) is a designer of power management chips and distance sensors used in electric vehicles and data centers.
Why Are We Out on ALGM?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 13.7% annually over the last two years
- Earnings per share have dipped by 16.8% annually over the past four years, which is concerning because stock prices follow EPS over the long term
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 10.5 percentage points
Allegro MicroSystems’s stock price of $30.48 implies a valuation ratio of 61.3x forward P/E. Dive into our free research report to see why there are better opportunities than ALGM.
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